Streams

Why No Financial Crisis Arrests?

Friday, April 15, 2011

Welcome to Politics Bites, where every afternoon at It's A Free Country, we bring you the unmissable quotes from the morning's political conversations on WNYC. Today on the Brian Lehrer Show, Louise Story, New York Times Wall Street and Financial reporter, talked about why there haven't been any arrests or prosecutions of major figures as a result of the financial crisis.

What Did Cuomo Know?

Years after the worst economic disaster since the Great Depression, no legal action has been taken against any of the financial industry's major players.

Why not? The short answer is that government officials simply aren't bringing any lawsuits—suspicious, because the evidence seems to be there. For one such example of an investigator sitting on their hands, Louise Story said, look no further than New York's newly-elected governor Andrew Cuomo, who happened to be the state's Attorney General during the collapse.

Cuomo was really one of earliest to start looking at mortgage securities. He subpoenaed all of the banks and rating agencies back in the summer of 2007, before people really realized we were having crisis. There was all this information about how they were packing loans into mortgage bonds, but that's something he never brought a case in. He had all that information showing just how much banks knew about how crummy those loans were.

Systemic Stalling

Story also pointed to Cuomo's prior concerns about AIG bonuses and Lehman Brothers accounting practices, two instances where the former AG didn't go as far as he might have to hold these institutions accountable.

But our enforcement problem runs much deeper than a state attorney general. Story called out the Securities and Exchange Commission as well as the Department of Justice for the way they hobbled certain investigations. By all outward appearances, it seems these institutions were operating under a policy of muted response, which began under President George W. Bush immediately following the crisis but has continued under Barack Obama.

These cases take a long time, so you have to look back at decisions from three, four years ago. In Spring 2008, the top person in the criminal division at the FBI did a big study and wanted to deploy lot more FBI agents across the country on financial fraud, mortgage fraud and to look at mortgage brokers all the way up to executives. He sent out a memo that told field agents to redeploy, and there was pushback from the Department of Justice (DOJ). A week later, he had to send out another memo saying if you want to opt out of that, call us. You needed those agents doing that work then in order to have cases now.

The SEC also had a policy not to put too heavy penalties on bailed out banks...That policy was not used all that much, and not too many cases came out of it, but again it sent out a signal to investigators at the SEC about how hard to work and how fast to go on cases against banks who got bailout money.

A Crisis of Stupidity?

Banks and brokers aren't the only ones who could potentially face legal consequences, were anyone to take a shot at prosecuting them. Rating agencies, for instance, either lied or dropped the ball by giving Triple A ratings to terrible loans from big banks. Story said these agencies may be complicit in the scheme, but it's just as likely they were negligent—which highlights just how confusing and complicated this whole situation is.

The big question is whether or not rating agencies were duped by banks, who were maybe giving wrong or misleading information, or if there was wrongdoing, were they complicit? The thing to remember is, it's not absolutely clear whether there was wrongdoing at all. A lot of people say it was a crisis of stupidity, not of wrongdoing.

Prosecution ain't what it used to be

Story said that the federal government used to take financial sector failings more seriously. Since the savings and loan crisis of the '80s and '90s, cooperation among investigative agencies has been replaced by a whole lot of foot-dragging.

The second that crisis started, the government put a lot of resources into creating a task force with hundreds of lawyers to get aggressive on this. They required bank regulators to refer cases to the task force, and it's really the bank regulators who know what's going on in these companies. We looked at the data on referrals, and you can see that it went up a ton during the savings and loan crisis, fell during the mid-'90s, had a little spike up around Worldcom and Enron, but otherwise stayed down and has not climbed during the financial crisis. Regulators aren't sending over a significant number of things for the DOJ to check out.

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Comments [26]

JGL from BX NY

Eugenia,

For the most part no everyday person looking to buy a house was aware of the treachery and pit falls that were part of the previous mortgage market.

Your just an every day, moral person applying to a bank and hoping you meet their criteria, not aware that the products offered to you and the standards used to evaluate your credit worthiness have been purposefully down graded to a point that puts you and by extension the entire worlds financial system in financial jeopardy.

You just wanted to buy a house, you and many other Americans are victims of a social engineering experiment.

OOPS, you loose. Sorry.

You are victim of a political, social experiment gone wrong, of course conceived and executed with only the best intentions.

Government directly interfering in markets through law and directives to business is a short term main line trip to disaster.

Governments role should be about proper regulation and taxing used as incentive and disincentive.

No more no less.

I have compassion for your situation, sadly, you will see few to none of those directly responsible prosecuted, they wrote the laws that allowed it.

P.S.: The next experiment in government social engineering and private market intrusion would be The Healthcare bill, which is now law.

Stay tuned this should be even better.

Apr. 15 2011 05:41 PM
Eugenia Renskoff

Hi, Brian, I think they all should be put in jail, all the people that did harm to borrowers. I am one of them. In 2002, I was steered into a subprime mortgage. Before then, I knew nothing about subprime mortgages or predatory lending or mortgage fraud. Those responsible are still free while I am living the consequences of their greed. Eugenia Renskoff

Apr. 15 2011 03:39 PM
JGL from BX NY

Like Alan Greenspan has said:

(I para phrase)

" I believed the the bankers would self regulate themselves.

I apologize, I was wrong."

Too much regulation is one thing but purposefully eliminating proven good, proper, common sense regulation borders on conspiratorial.

Especially when driven by political agenda.

Bankers themselves have said that they are unable to self regulate, its counter to the nature of the beast. Glass - Stiegle recognized that fact.

No proper, proven regulation and the feeding frenzy will ensue. Profits are their meat.

They are called sharks for a reason, they do serve their purpose in the proper setting.

Apr. 15 2011 01:15 PM

Charlie,

Another, more immediate reason there are no prosecutions is that there is kid's gloves oversight. The reason why the Senate oversight was and is so slight is because the criminal executives on the Street are the Democratic Senators' biggest campaign contributors and the Democrats hold a majority in the Senate. The reason why the criminal executives on the Street became the biggest campaign contributors for the Senate Democrats -- and thus why the Democrats were able to be in the majority coming into the financial crisis -- was because one of their number, former Goldman Sachs senior partner and then-Senator Jon S. Corzine, was head of the Democratic Senatorial Campaign Committtee.

Apr. 15 2011 12:53 PM

And, JGL, in the case of former Senator Corzine, they WERE one and the same.

Then, as Governor, he tied New Jersey to the Lehman falling star.

The man is a total sleaze!

Apr. 15 2011 12:30 PM
JGL from BX N.Y.

YOUR NOT PROPERLY FOLLOWING THE LOGIC STRING RELATED TO THE CAUSE OF THE FINANCIAL COLLAPSE AND POTENTIAL LEGAL ENFORCEMENT

Brian your talking about what happened after the singularity that produced the atmosphere that allowed the bad business banking / mortgage culture to come into existence.

Bankers were instituting policies established by politicians who wrote law, who were attempting to social engineer the market through the Community Reinvestment Act.

The CRA instituted by Carter was later reinvigorated by the Clinton administration and then compounded by the eliminating of the Glass Stiegle Act.

The butter fly's that created the hurricane.

The "good intentions" of politicians, purposefully perverting and disrupting proven, successful business models and markets through law, created the atmosphere for the resulting disaster.

Bankers were told how to treat the market by law, political threats and leverage, bankers and Wall Street just proceeded to do what they do.

The perversions that later ensued are being smoothed over, the politicians agenda has played out, it has failed. Social experiment through politics is over, in this instance.

Why would the politicians now turn on the bankers who were executing the politicians agenda? They have and do walk hand in hand.

There may be minor prosecutions related to some egregious later actions but in general the American public and the world will be the sacrificial lamb, if you take the bankers you should be also taking the politicians behind the laws that drove them.

We can have another conversation about how to distinguish between politicians and bankers, you can argue that they are one in the same.

Apr. 15 2011 12:08 PM

When will they investigate Jon S. Corzine and the DSCC-Wall Street link?

When it's 30 degrees in Sheol?

Apr. 15 2011 11:52 AM
Charlie From New York

The reason these people didn't go to jail can be found in Matt Tiabbi's piece in Rolling Stone this past March. IT IS A MUST READ. And Brian should have him on to explain why there have been no prosecutions.

Apr. 15 2011 11:32 AM
Nick from UWS

Sounds like this woman was paid a healthy fee to writea pre-emptive article for the banking industry. Because, despite the impressive blather, not once in this interview did she ever say why no one has been prosecuted for the financial crisis. Not one caller's question was answered directly.

Apr. 15 2011 11:28 AM
Argent de Poche from NYC

Wonderful piece and a great service to the public, thank you Louise Story and Gretchen Morgenson.

Can you also talk about the glaring lack of real change, in terms of what would prevent activities like this happening all over again?

I know Brian's had guests covering this, but, it's valuable to consider in this context.

Apr. 15 2011 11:28 AM
Henry from Katonah

Can prosecutors ( I believe , for example that the Securities & Exchange Commission can ) bring civil charges?
I would rather have individuals and financial firms give up their ill-gotten gains than send them to jail . I would hope that would send a message.
I just served on jury duty and the bar for proving individual crinimal charges is very high. And this situation was systemic. Including the federal regulators .

Apr. 15 2011 11:27 AM
dan k from Chelsea

if this was a crises of stupidity, why do so many stupid people get paid so much, and get bonuses for their stupidity? who are we kidding here. It's charity calling them stupid. Try calling them devious please

Apr. 15 2011 11:25 AM

David from Manhattan: here's who you charge:
http://www.nytimes.com/2011/03/26/business/26nocera.html

Apr. 15 2011 11:25 AM

David from Manhattan: here's who you charge:
http://www.nytimes.com/2011/03/26/business/26nocera.html

Apr. 15 2011 11:24 AM
David from Manhattan

I don't understand why mozillo and castrano have not been charged - there are clear publicstatements they made that are false, and we have contemporaneous emails they made where they indicate that they knew the falsity of the statements...if you can't charge these guys, who can you ever charge?

Apr. 15 2011 11:22 AM
elaine from li

What about the bond raters?

Apr. 15 2011 11:21 AM
jgarbuz from Queens

BS talks; money walks. No jail for banksters.

Apr. 15 2011 11:20 AM
Jean from office

If there exist such vast evidence of illegal actions related to the financial crisis, I would expect a long list of derivative shareholder suits to follow. So far it seems, there also have not been that many derivative actions which suggest that maybe these potential causes of actions might be weak.

Apr. 15 2011 11:19 AM
Argent de Poche from NYC

Wonderful piece and a great service to the public, thank you Gretchen Morgenson.

Can you also talk about the glaring lack of real change, in terms of what would prevent activities like this happening all over again?

I know Brian's had guests covering this, but, it's valuable to consider in this context.

Apr. 15 2011 11:18 AM
MIke from Tribeca

Why bother going to the trouble of indicting and imprisoning a financial Master of the Universe? If they can take down the world's economy while making out like bandits, surely they can also walk through granite walls.

Apr. 15 2011 11:18 AM
Howard from The Bronx

What are the legal time limits to bring these cases?

Apr. 15 2011 11:17 AM
Howard from The Bronx

What are the legal time limits to bring these cases?

Apr. 15 2011 11:17 AM
Dallas from NYC

Here is a clip of Alan Greenspan admitting that illegal things happened: http://www.youtube.com/watch?v=731G71Sahok&feature=player_embedded#at=29

Text: "There are two fundamental reforms we need: adequate capital and to get far higher enforcement of fraud statutes – existing ones – I’m not even talking about new ones. Things were being done which were certainly illegal and clearly criminal in certain cases. If you cannot trust your counterparties, it [capital markets] won’t work. And indeed we saw that it didn’t."

Apr. 15 2011 11:12 AM

No banksters in jail but Charlie Engle is for lying on a loan about his income.

http://www.nytimes.com/2011/03/26/business/26nocera.html

Apr. 15 2011 11:10 AM

I'm angry but NOT surprised. Of course there have been no arrests--the fox is guarding the hen house.

Let the legalized land grab continue!

Apr. 15 2011 11:04 AM
Ron Sanecki from Keyport NJ

investigate wall street first, then Bonds and Lance Armstrong!
This way they will NEVER have time to get to sports.

Apr. 15 2011 10:13 AM

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