August 19, 2012

Money Talks, Wall Street Walks

On August 9, 2012, the Justice Department announced that it would not be seeking criminal charges against Goldman Sachs or any of its employees for selling risky mortgage securities to banks and other investors without telling them that the investments were risky. In the world of business ethics, these are known as liars loans. After marketing what it knew to be very risky mortgage securities, Goldman secretly bet against the investors’ positions and hid the fact that it had done so ... and laughed all the way to the bank.

A Senate probe had no trouble finding plenty of evidence against Goldman, including emails written by company employees describing the mortgage securities as “junk” and “crap.” But after conducting what it called an exhaustive investigation, “The department and investigative agencies ultimately concluded that the burden of proof to bring a criminal case could not be met based on the law and facts as they exist at this time.”

The newly minted Government Accountability Institute (GAI), has just issued a report documenting the stunning decline in prosecutions, a decline it alleges is due to the revolving door between the Justice Department and law firms representing the big financial firms on Wall Street. Attorney General Eric Holder came from Covington and Burlington, a big D.C. law firm that represents Goldman Sachs and other financial institutions. The man he appointed to head up the Criminal Division came from the same law firm. Other top deputies shared a similar background of representing top financial firms.

Then there is the man where the buck stops, President Obama. He outraised his Republican rival, John McCain, on Wall Street--around $16 million to $9 million. More to the point, Newsweek reports that, "in the weeks before and after last year's scathing Senate report, several Goldman executives and their families made large donations to Obama's Victory Fund and related entities, some of them maxing out at the highest individual donation allowed, $35,800, even though 2011 was an electoral off-year. Some of these executives were giving to Obama for the first time."

Maybe there is a dot or two to connect here, maybe not, but the record of the Justice Department under Eric Holder speaks for itself: not a single criminal prosecution filed against individuals involved in financial corruption. Contrast this with the record of the Clinton and Bush administrations. A GAI report notes that, "Financial fraud prosecutions are down 39 percent since the Enron and WorldCom disasters in 2003, and they are just one third of what they were during the Clinton years."

But cheer up. All is not lost. The Securities and Exchange Commission has finally found a poster boy for financial corruption. That would be former Baltimore Orioles star Eddie Murray. Murray had a former player/friend who had a neighbor who told him about a deal. The friend passed along the tip to Murray, who invested in the stock and made a modest killing. Murray got called out on an insider information pitch, and was ordered to pay $358,151 to make it go away. That sounds like a pretty good chunk of change, but as David Weidner points out in the Wall Street Journal's MarketWatch:
To give you some perspective of the enormous gains Murray made — it took American International Group Inc. about three hours to make the same profit in 2007. It took Goldman Sachs Group Inc. less than 15 minutes the same year ($11.6 billion divided by 365 days, divided by 24 hours equals $1.32 million an hour). Lehman Brothers chief executive Dick Fuld was awarded a $22 million compensation package in 2007 — $5 million of which was cash. The same year Jimmy Cayne, who led Bear Stearns & Co., was given a package worth $34 million. The week his firm collapsed he sold all of his shares and pocketed $61 million.
Some banks are too big to fail. They also seem too big to be criminals. Greedy, duplicitous and immoral ... for sure. Criminals? Can't prove it by Eric Holder or anyone else in the Obama administration. Little guys like Eddie Murray have the government all over them. The big boys walk away with golden parachutes. That stinks.

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