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Of Banks, Billions and Bupkes, Part 2

Uploaded: May 27, 2015

Part One of this epistle posed the question: if these banksters' actions are so bad, and they are, why are none of them breaking rocks in the hot sun?* Why are there no failures to communicate?** Answers are out there ? they may not be satisfying, but they exist. Sadly, nobody to the right of Bernie Sanders expects the situation to change, any time soon.

First, a note. Because the Big Banks' impacts are so pervasive, there's a tendency to lump all their bad effects together. That leads to some confusion of the issues: some of their actions have been merely reckless, which is bad for the rest of us, but may not be criminal. Other actions take place in a regulatory vacuum. Those voids shouldn't exist, given their potential for mischief, but this is one of those cases where political influence buys you a whole lotta nothin'.*** In both those situations, reform is a very good idea, but can best be addressed through legislative and regulatory channels ? conduits congested with lobbyists and their campaign lucre.

But that said, there is an entire litany of more prosaic forms of bank buccaneering. Add the following list to the recent foreign currency market trade-rigging discussed in Part One (and thanks to BobB for providing the link to this catalogue of bad behavior collected by Forbes magazine):

? Trading gone awry: JPMorgan's loss of $6 billion from trading activities of which CEO Jamie Dimon was blissfully unaware.
? Price fixing at LIBOR. Many of the biggest banks now stand accused of manipulating the world's most popular benchmark interest rate, the London Interbank Offered Rate (LIBOR).
? Foreclosure abuses. ? big banks agreed two settlements totaling $20.15 billion for foreclosure abuses.
? Money laundering: Accusations of illegal, clandestine bank activities are also proliferating. Large global banks have been accused by U.S. government officials of helping Mexican drug dealers launder money (HSBC), and of funneling cash to Iran (Standard Chartered).
? Tax evasion: Two Swiss banks were involved in Switzerland-based. In 2009, UBS [UBS helped 20,000 U.S. taxpayers with assets of about $20 billion hide their identities from the IRS. Now, the oldest Swiss bank, Wegelin & Co. has been indicted on criminal charges for helping U.S. taxpayers avoid taxes on at least $1.2 billion for a nearly ten years.


The raw numbers are startling: white collar crimes are now prosecuted in fewer than 10% of federal indictments, almost halved since the mid-1990s. Here's another for those who may recall the Savings & Loan debacle of the 1980s: over 800 individuals were convicted of wrongdoing there, whereas exactly one banker was convicted of anything after 2008 ? and he basically gave up.

So why are the living, breathing, slithering personnel reprehensible for these misdeeds so seldom charged with crimes?

First and foremost, there's the so-called Arthur Andersen Effect in the wake of the Enron implosion. It gave life to former AG Eric Holder's famous memo in the '90s about collateral damage from DOJ prosecutions. In the AA case, prosecutors played hardball with the recidivist accounting giant, convicted it of felonies-without-waiver, and thus cost thousands of innocent employees their jobs when the firm went belly-up. Then Assistant AG Holder had argued that potential damage to the broader economy and the narrower careers of non-participants ought to be of strategic concern to the government.

There were also legal and case management setbacks that led the Department to change its approach. The availability of certain charges, like some species of fraud, was narrowed by the Roberts Supreme Court, and formerly useful tactics that limited defense-side coordination and confidentiality were criticized by the judiciary as overreach. That conclusion led to failed cases against the likes of KPMG accountants.

Thus, its quiver depleted and its aims compromised, DOJ set about to pursue more modest "deferred prosecution agreements" of the kind that well-heeled matrons sometimes get when they shoplift. In those cases, the government seeks to extract better behavior by deferring the case for a time, as long as the defendant keeps its nose clean in defined ways. Those settlements typically regulate companies (although better use of them could also be made personally). Actual trials became rare.

Like any organization, DOJ needs to maintain its talent pool to stay effective. High stakes litigation against well-represented defendants is complicated and difficult (in that vein, you may recall that DOJ brought-in redoubtable trialist David Boies, who had beaten them earlier in a similar case, to prosecute the Microsoft monopolization matter in the 1990s. That move also kept him away from the defense table). They no longer had either the top-flight frontline litigators, or the bench strength to credibly go to court ? they knew it, and at least as importantly, so did the defense bar.

Then there is the case of the low-hanging fruit. Career effects are never far from center-stage, and there were reputations to be made on easier cases, like insider trading, against individual defendants. DOJ has enthusiastically pursued those miscreants, and is compiling an enviable won/lost record in the process. That's a good thing. You could argue that they have successfully deterred many other tempt-able individuals, which is a very good thing. But that's the point ? it would also be a good thing in the other scandals set forth above.

Finally, there's the matter of funding, which ought to be cautionary for proponents of "starving the (government) beast." DOJ claims that various initiatives that might have borne fruit here and elsewhere have had to be foregone for lack of resources. I'm not certain how far to take that argument, but to the extent that it is valid, the lobbyists and the unleashed campaign contributors have struck again. Investments in influence have paid-off handsomely.

I would like to believe that there's hope for change, even after the hope-and-change folks came up empty. But I don't see it. Neither major party candidate is likely to overtly bite the hands that feed them their daily campaign manna, so the beat will go on. They say that guarantees are bad for the soul, in general. Never is that more true than when the reassurance is against the natural legal consequences of your misdeeds. ****


* First ten-point toss-up: what song?

** Second ten-point toss-up: what movie?

*** Apparently this is a song, too ? maybe even a famous pop culture reference that almost escaped me.

**** I'm indebted for much of the substance above to excellent investigative reporting by the NYT reporters Jesse Eisinger and Ben Protess, along with the media watchdog organization "pro publica."

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