Bad Actors


A continuing source of frustration for many Americans has been the fact that no one on Wall Street has gone to jail for the mortgage fraud that nearly crashed the world financial system in 2008. But in the last three weeks the dam has broken and the indictments are beginning to emerge. It may have taken a long time, but perhaps the departure of Tim Geithner, the boy with his finger in the dyke, will signal a new attitude by the Obama administration towards the Wall Street Miscreants.

The first step was the amazing Frontline episode The Untouchables, which depicted a craven Assistant Attorney General, Lanny Breuer, who went out of his way to protect the bankers, fearing an indictment would crash the financial system. Soon after the program aired, Breuer announced he was returning to private practice, probably to represent the big banks.

Next came the Department of Justice suit against Standard and Poors for their outrageous rating as AAA, securities that they knew were junk. The suit quotes internal S & P emails.

“Rating agencies continue to create an even bigger monster — the C.D.O. market,” one S.& P. employee wrote in an internal e-mail in December 2006. “Let’s hope we are all wealthy and retired by the time this house of card falters.”

Another S.& P. employee wrote in an instant message the next April, reproduced in the complaint: “We rate every deal. It could be structured by cows and we would rate it.”

Finally comes word this morning that Jamie Dimon and his pals at JP Morgan Chase were just as involved in mortgage fraud as any other bank, despite Dimon’s attempt to paint himself as the good guy during the 2008 meltdown.

According to the court documents, an analysis for JPMorgan in September 2006 found that “nearly half of the sample pool” — or 214 loans — were “defective,” meaning they did not meet the underwriting standards. The borrowers’ incomes, the firms found, were dangerously low relative to the size of their mortgages. Another troubling report in 2006 discovered that thousands of borrowers had already fallen behind on their payments.

But JPMorgan at times dismissed the critical assessments or altered them, the documents show. Certain JPMorgan employees, including the bankers who assembled the mortgages and the due diligence managers, had the power to ignore or veto bad reviews.

The real problem with establishment types like Tim Geithner and Lanny Breuer is that they went to Ivy League schools and couldn’t imagine that their establishment peers would possibly commit fraud. And even if they saw evidence of the fraud, then preserving The System became more important then sending their classmates to jail. President Obama bought into that establishment trope in his first term. He surrounded himself with people like Geithner, Larry Summers and Bob Gates. But I sense something has changed. The appointment of Mary Jo White to head the SEC could be a sign that heads are going to role, but the real change will come from more lawsuits filed like the S & P case. Certainly the other ratings services, Moody’s and Fitch, are equally guilty of pay to play services.  One of Obama’s greatest legacies could be a real financial reform agenda.

This entry was posted in Barack Obama, Corruption and tagged , , , , , . Bookmark the permalink.

24 Responses to Bad Actors

  1. FarePlay says:

    Thanks Jonathan, we seem to share an interest in maintaining some level of ethics in our society. Why the rich and powerful are allowed to behave badly and get away with it doesn’t send a very inspirational message to everyone who struggles.

    Keep up the valuable, insightful commentary. Looking forward to your next installment on Fortune 500 Advertisers who support online piracy.

  2. Hugo St. Victor says:

    Yep. Inexcusably convenient.

  3. Alex Bowles says:

    Via the folks at Frontline:

    Under federal securities law, the statute of limitations in fraud cases normally lasts five years. Given that the bulk of the mortgage-related securities that precipitated the crisis were created in 2006 and 2007, the window of opportunity for authorities to bring new charges is rapidly closing.

    The piece goes on to note that the SEC is now exploring options for an extension of the deadline, or a ruling that starts the clock when the alleged crime was discovered rather than committed, but the Court seems less than sympathetic. The Post published a slightly more nuanced take on this question last June, but the gist was the same; waiting this long benefitted nobody but the banks.

    I’m still not sure that what we’re seeing here isn’t the endgame in an elaborate and protracted hustle. And for all the richly-deserved animus directed at Tim Geithner, I suspect Eric Holder was the larger part of the problem. And then there’s the OCC which ~”pound for pound may be the most pernicious.”

    As far as I can tell, the crisis was the inevitable result of a sustained and “successful” assault on the government’s regulatory power, starting with the very concept of regulation, and working its way down to the enforcers. Only now, half a decade and two major elections after the resulting heist, are we beginning to put cops on the beat. And still the top cop remains deeply compromised. Given the enormous creativity of the DOJ’s approach to drone law, I remain deeply skeptical about their insistance that successfully prosecuting financial fraud at the top levels of US banking was just too gosh darn difficult (and risky!).

  4. JTMcPhee says:

    Like all of this stuff, Wall Street related, it’s “for the rubes.” Dumb Money, Muppets, anyone know any of the other “gook” equivalents that are au courant? How about that Grand Rotation?

    This is just part of another manifestation of the end game of empire, maybe of the species, where the few who have suborned the institutions continue the looting. A lot of Nazis showed their true colors toward the end, grabbing all that art work and the gold pried from the teeth of dead campers, pre-burning, and ran off to comfortable retirements in Argentina and mirabile dictu, AMERICA! What’s coming is either a “too late, statute of limitations has whipped by,” or “too complex, we don’t know what they did or how they did it and their lawyers and lobbyist will bury us in paper and besides, being too tough limits our forward career options.”

    It’s not like the whole declining process is so obscure. I was an “assistant regional counsel” for EPA in Chicago for maybe 13 years. At some point the zeitgeist was that the damage from externalities being shoved up the public ass by corporations was then intolerable
    (we have apparently been sufficiently “re-educated” that tar sand and ever-increasing combustion and hormone-mimicking shit in our food and filth in our disappearing drinkable water is A-OK that the Righteous Anger, the fear for our offspring, has downed a sixpack of Bud Light and driven to the Mall), and a few of us enforcement-minded folks put together a CRIMINAL enforcement program targeted at changing and deterring individual bad behavior. Not only did we have criminal acts defined and penalized under the substantive environmental laws, tools that had received damn little attention from DoJ (which is a really curious institution, as some others here can attest, no doubt), there are a bunch of others under 18 USC, including mail fraud, wire fraud, and lying to the federal government. As in falsified air emission and discharge monitoring reports, reporting on the disposal of hazardous wastes, stuff like that. Things that actually sicken and kill people, and steal the value of their property by more physical invasions than mortgage fraud. I wrote a paper and gave a talk in maybe October 1981 to the ABA environmental law section meeting at the Palmer House, telling them to tell their clients, the suits they sucked up to to keep their billings, that Uncle Fed was looking at PERSONAL liability, not just little expensible fines on the corporation, and on what basis and under what authority and what the “exposure” was. They wanted to shout and laugh me off the podium. But there was an effort, and a considerable number of those suits who could not shove the responsibility and liability down onto people below them learned some new stuff from the consultant segment that advises people like that how best to work the system with the federal corrections department, to slant the pre-sentence investigations to minimize the severity evaluation under the old (since regulatorily-captured-and-revised-downward) sentencing guidelines that at the time reflected the community sentiment on the degree of opprobrium that ought to apply to these guys, to get the malefactors assigned to the least uncomfortable “beds” the least distance from their “homes” (“consider the horrific pain to their loved ones of the separation…”) and the best ways to accumulate “good time” and the best ways to blow off “community service.” And then along came the Reaganauts, who pulled the rug from under the whole thing, according to Book Four of the Gospel According to the Fucking Heritage Foundation, the Great Tablets of the “Mandate for Leadership,” regularly revised and updated. And the word went out from Caesar Ronaldus: Send us no more enforcement actions; we are now engaged in the Sacrament of Customer Service, and Industry, that Powerhouse of Democracy and Freedom, is your new Customer. So that was an end to the breathless, increasingly ineffectual announcements even of “EPA Heralds Imposition of Largest FIFRA Mislabling Penalty EVER,” the marks that the scalp-hangers used to add to their belts, with copies of press clippings and and “consent decrees” and the occasional verdict forms and penalty payment checks in the millions of bucks taped to those dingy DoJ and EPA office walls…

    Jon knows a lot of money people. Any of them seriously looking to hire the best former prosecutors they can find, to befuddle the feds and keep the shits out of jail? Any of them checking the integrity of the content of those thumb drives full of smoking guns that supposedly, according to comments made here half a decade ago, were being assembled by the Greedheads to be their trading cards with the future fed enforcers?

    New York and that other City are notoriously tough on do-gooders. Hippies and Yippies found out how the hardhats swarming out of work sites where they were erecting the corporate phalluses of the very folks who were actually screwing them knew a whole lot more about violence when confronted with window-breakers and trash-can-turner-overers than the folks who were seeking the Harmonic Convergence. And remember that telling picture of the fuckers in the bespoke suits on their balconies, sneering and toasting with their champagne flutes, at the Occupiers and others wobbling through Wall Street on the way to meeting Mayor Bloomberg’s Army? The process is the same, over time: the tapeworms get to the point that there’s a need for a violent worming, which because there are two basic types of humans, people who make stuff and people who take stuff (and the Mittsy trope on that theme is so patently bullshit), all it does is set up the next round of hierarchy and oligarchy and finally predatory and terminal kleptocracy. Because nobody who counts, who has the power to move the dials and levers, has the tiniest interest in more than just enough stability to preserve their conduits into the pot of wealth, real wealth, that the ordinary folks keep replenishing, as they have done in pulling “us” out of the recent collapse (just far enough to start up another round of bubble-blowing and indebtification and subjugation), just as they have done since we got “civilized” in the Tigris river valley so long ago. “I am Ozymandias, king of kings!…”

    Jon knows a lot of money people. Any of them seriously looking to hire the best former prosecutors they can find, to befuddle the feds and keep the shits out of jail? Any of them checking the integrity of the content of those thumb drives full of smoking guns that supposedly, according to comments made here half a decade ago, were being assembled by the Greedheads to be their trading cards with the future fed enforcers?

    I used to read Yves Smith every day. Can’t stand to read all her revelations any more. Too depressing. Too enervating, since there’s not a goddamn thing likely to be done about any of it, in any way that will lead to future Goodness.

    I like Hugo’s remedy for the War Department: Disestablish the thing, raze the buildings, and try a different path. The fucking thing is on life support anyway, and why make a few cancer cells comfortably happy until they die a natural death? Not that that is ever going to happen: too many opportunistic niches for the sharp to find their way to the Mother Lode, to morph into tumor tissue and start sucking up their load of life force.

  5. len says:

    Among the dreck, some cool stuff is happening…

    On the other hand, tomorrow I have to take training designed to convince me that posting to blogs like this is inherently dangerous to my income. rats…. why the hell do we bother to defend freedom if we aren’t free.

  6. JTMcPhee says:

    Once again, where’s the Source, the Meaning, the Guide that pulls all the possibilities toward a direction where the mostly stupid effing species, pursuing all those individualized goals of MORE! or paying it forward or whatever floats their particularized boats, has a chance of, you know, persisting?

    See you later? or not…

  7. Hugo St. Victor says:

    @len, That Was the Week that Was: magically, I quit Facebook, my sole form of “social networking”, explicitly on grounds of its structural soullessness; some BS subsidiary called Linkedln then inundates me with touching entreaties; then His Holiness Pope Benedict embraces Facebook and even giddy Twitter as modern modes of human Communio, and next thing you know the old German Shepherd’s given up the rackets for Castel Whereveralvo and Jesuslawd truly help me but I’m all, like, Father in Heaven, please pinch Ivan Illich and have him pass it on to Marshall McLuhan via holy whoopie cushion~~~~what a soul-crushing implosion, what a cosmic Black Hole, of human understanding of communications. What, in other words, a fucking joke, and what a pathetic gesture from a lifelong McCarthyite pimp bent on counter-fear. As though Dr. No had nuked all the comskools and inseminaries at once, and still had sufficient evil remaining to blackout half the Super Bowl. “Gutten Morgan, Facebook!” Yep, things got pretty Deep Vulgate by the turn of this next week, but then I klicked back from Greenwich to Vat Time, and realized that we’re all still shaking mud from our webbed feet as we crawl onto Rick’s Tasmania 1964.

  8. Hugo St. Victor says:

    I will bet that nobody on these shires, other than perhaps Liz Trotta, has the moxie to construe the mulitidimensional schisisms that could ensue within worldwide Catholicism rivaling the mayhem we’ve seen in Islam for fifteen years or more. Obviously that Church is asynchronous with our commerce and metereorolog but its timing impinges on Humanity’s quality of life &tc. So the next election, in Rome, probably matters more than Mr. Obama’s reelection does. As I do not hold a faculty chair I’ll take the heat for pointing this out. It could change our algorithms across the board, Len, if you get how pent-up Catholic Christendom has been for fifty years.

  9. Rick Turner says:

    Islam is about 500 years behind.

    So the pope is quitting…so the fuck what? If I were 25 years old and the head of so corrupt an organization, I’d find a reason to quit, too.

    He may be old; he may have trouble walking; but the real reason he’s quitting is that he’s weary deep down in his soul. His job…before being pope…was as the Numero Uno disciplinarian of the Church of the Vatican. 500 years ago his title would have been Chief Inquisitor…literally. The fact is that he was an utter failure in his job, and he got that fact thrown in his face when he got to the top of the Catholic Church ladder. His church became an utter magnet for sadistic psychopathic pedophiles. And that, after centuries of abusing and exploiting the ethnic minorities of the world starting in Europe and then spreading to the Americas and anywhere else in the world where misogynistic and paternalistic paranoid psychopathy might gain a foothold. Would that the pope’s mother had practiced birth control…or had aborted him.

    Well, maybe Islam will catch up in 500 years or so…right now it’s absolutely the most dystopian force we see. I find myself horribly fascinated when the Sunnis blow up the Shiites, and vice versa…kind of hoping they’ll just all neutralize one another for once and for all… And then there are the wacko Israelis who are trying to lure the Four Horsemen on down from outer space…to the applause of the Apocalyptic Christians here at home in the US.

    As far as I can tell, organized religion is the worst aspect of human behavior yet set loose upon us on this planet. Stupid territorial games and drug gang violence come in a distant second and third. I guess you know where I stand on this shit. It all looks as plausible to me as the Book of Mormon or the writings of L. Ron. It’s all “science” fiction…with the emphasis on “fiction”. And it does more harm than good.

    And I could give a lesser shit who the next pope is going to be. May the Papal Batmobile break down and Il Papa have to get out and change a flat tire and get grease on his white garments.

    Meanwhile, check out how the early church folks in California drove the natives to extract gold from ore… How would you like to walk many miles a day in a circle round and round and round up to your calves in mercury? Father Junipero Serra was the warden of a prison camp…

    Happy Mardi Gras. Laissez les bon temps roulez…

    “With God on our side”…and all that…

  10. JTMcPhee says:

    Why do so many humans need some dude or dude-ette in white, Il Papa or Amy Semple McPherson or Benny Hinn or Ayatollah Fukalittaboya, to help us channel and signify and manifest and order up and tithe off of those ineffable, inexorable impulses to Find the Divine? And of course those “Christian” (sic) mercen-, er, “missionaries” who went to Hawaii with their libertarian social notions overlain, pace W. Somerset Maugham, missionary-position I guess, by the Calvinist Creed of Greed Rewarded, and ended up owning, legally of course, and leasing back to the “wogs” and others, most of the land ? And other places?

    And now we got the drippings and droppings of what’s labelled Muscular Wilsonianism, a new kind of faith for the rubes and suckers, that says Hellfire rained down from (why don’t the “Christians” in the MIC call them “Brimstones” instead of “Predators?” I get the “Reaper” part, of course) On High is ipso facto, QED, I Drive a Fiat “perfectly legal.” “Judge not lest ye be judged (knowing and actually believing that Imagine, there really is no heaven or hell, and no consequences for any evil done or imagined,)” to “protect American interests” like embassies that are spy nests and the sources of oppression and instability under a pretense of “spreading freedom and democracy,” and Forward Operating Bases that are imperial outposts sited to just ATTRACT “Unlawful Enema Combatant” fire, and as with the old British Rule The Seas Rule, once someone shoots at the FOB they are by definition, along with everyone in the neighborhood, what’s the phrase, “signature targets?” Hit a hornet’s nest with a stick and complain when they dare to come out stinging….

    What an almost totally fucked and rotten species we are. Except, of courst, for me, and you (maybe) and anyone who believeth on who, what, when, where and why I happen to believeth on…

    Herein endeth the feckless lesson of the day…

  11. Hugo St. Victor says:

    Rick, did you really think I’d solicit sympathy for a “McCarthyite pimp”? Hell, obviously the only reason to care is the potential blowback: the megatonage and global throw-weight of the ancient, burgeoning institution. (And JTM don’t ask ME why they set it up that way; in Canon Law I’m just a non-attorney paid spokesperson). Beginning in the time of President Kennedy the See for years proclaimed worldwide its felt intent on changing the relationship betwixt the believer and the one in authority. That, to me, was definitive radicalism. We Yank Boomers may not see it as such but the Collegium did, and they meant to stop it from happening. In the part of Saul of Tarsus they cast Joseph Ratzinger. Later they re-badged him not only as Pauline but as Petrine. All I’m saying is that it’s over, not in journalistic time–in Catholic tempus fuggit–fifty years of “bad weirdness” is over. Though an outsider I pray urgently for the Roman See at this moment. Pray for them and their little ones, pray for American self-interest frankly, and basically I just pray right now for peace and for their spreading of Love. That’s all.

  12. Rick Turner says:

    Speaking of bad actors…the rogue cop in LA…whew! They sure wanted him dead and not talking… Yes, he went off the rails, but could they not have just set up a perimeter around that cabin and starved him out? Sure, there was the chance he’d shoot himself or come out firing…”suicide by cop” as it is called…but we’ll never know, will we? The LA cops have proved themselves to be incredibly undisciplined and trigger happy, kind of inadvertently proving Dorner’s point…that it’s a corrupt police force with poor leadership. How many bullets in that truck the women who were delivering news papers were in? Now there’s a nice lawsuit to be ultimately paid out for by the taxpayers of Los Angeles. If I were a citizen of LA, I’d be suing the city government officials individually…not to be paid for by the people. And I’d be looking to overturn any indemnity laws protecting stupid cops and their bosses.

  13. Rick Turner says:

    Ahh, yes, burnt to a crisp except for his driver’s license. Kind of reminds me of the last stand of the SLA…another LA cop gun battle that ended in perp immolation.

    I’m not defending Dorner or the SLA by any means. I just think it might be more useful in the long run to take them alive. Not every bullet outgoing needs to be met with a hundred incoming. When these guys are barricaded, particularly if they don’t have hostages, it seems to me that the cops could just set up a perimeter of bullet proof shields and wait the guy out. So he shoots his gun. Keep heads down, send in a robot for parlay, whatever. He’ll sleep or starve eventually…Or do like the Russians did…lob in some sleepy time gas.

  14. len says:

    So we invent an instant shrinkwrap that attaches itself and lets oxygen deprivation do the rest. Even with tanks, eventually the perp passes out.

    Bullets are so last millenium. Take a note from The Prisoner: let Rover take over.

  15. Hugo St. Victor says:

    That’s right, “Rover”! I’d forgotten about that, and about the hermetically anaerobic St. Ives or wherever. How odd that an American TV network would see any profit in running a Prime Time existentialist serial for two or three years. As it could have nothing to do with silicon-implanted Long Island cougars or bloodthirsty teenage vampires it’s amazing in retrospect that “The Prisoner” happened. Presumably Rod Serling’s success with postwar existentialism augured well for the “Prisoner” teleplay pitch, but the whole shebang just seems impossibly elegant now. Orwellian all-seeing eyes in the sky, central command-and-control from remote locations, disturbingly sterile and weirdly idealized village communes and the absurdly violent need to excavate an individual’s psyche and scour any remaining soul…these motifs may be as generative, in the same weird way, as were the Star Trek devices that reportedly inspired the “Second Generation” of actual NASA engineers. Who knows. Good point about the similarity to drone programs, though, and to the surrender of individual freedom. That’s kind of eerie.

    As for the Southland’s cop-killing cop, out East it played off-kilter that almost the moment he was taken down by State Parks and the San Bernardino Sheriff’s Department down in the Basin, many jurisdictions distant, Mayor Villaraigosa spikes the football in their End Zone. That looked kinda surreal, amoral and very clearly prearranged. “Look what I did”! Just, kinda sick.

  16. Hugo St. Victor says:

    Excuse me, but this is most important: instead, “Silicone”. A blubbery blunder for wich I apologize to all concerned. My mind of late has been more on intellectual sand castles than on Les fake-fleshy Belle Poitrines, alas. Such a stupid Freudian old phoneme. But maybe it’s the Double Valence of our time, this cleavage….Ha! I hope not!

    A pretty powerful old Hawk I knew and loved once wrote in resignation that “We no longer can afford to glorify the Profession of Arms”. A shocking statement at the time, as superficially it seemed to discount, among others, those grievously wounded in warfighting. But of course the old hardass was referring to other matters and soon enough that fact sank in.

    It seems we’re all on the same page on that one. I’ve never agreed more with Taplin than when he asserted that the intricate conversion to Peace is really the note each of us should go out on, preferably by leaving abler ones behind. That’s just a bloody clear point of his. Good of him to say it. It’s practicable enough–if necessary, through simple cooperation.

  17. len says:

    An article vanished. I guess it is hard to be a curator and a living piece of history at the same time. Sad.

  18. Hugo St. Victor says:

    …hard to curate, anyway. What vanished, with what clues? That disturbs

  19. Rick Turner says:

    Jon’s piece on “the Band” vanished. I assume because it was devolving into a kerfuffle re. Levon Helm’s widow’s family feud with Robbie Robertson. Too bad; I like catching up on the better parts of music biz history of that era from different perspectives. Read “Positively Fourth St.” or “Baby Let Me Follow You Down”, for instance…

  20. JTMcPhee says:

    Meanwhile, back in FinancialWorld, the Overlords still Live Ever Larger:

    And tiptoeing through the tulips, with you:


    so much depends

    a red wheel

    glazed with rain

    beside the white

    Deep thanks to William Carlos Williams, for a model of insight, leading to

  21. len says:

    @Rick Turner

    I’ve seen it on Robbie’s FB page and other places Levon is discussed. I feel bad for Jon and the rest of them. It has got to suck that wherever they talk about their lives together then in an open forum, the mob descends. Not my life and I’ve no knowledge, but compassion, yes. It is an unlovely aspect of our internet society.

    I quite enjoyed what they did at the Grammies. A little flawed in places and that’s alright. They played with heart. Sir Reg and T-Bone made a place for the young-uns to be baptized in the waters of the blue flame. Good on ’em.

  22. Jon Taplin says:

    @len Thanks Len. It’s sad this can’t be discussed rationally.

  23. JTMcPhee says:

    @Alex Bowles
    Stepping way back up-thread to Feb. 7, this being a dead thread most likely so I do so in the knowledge of initial futility, might I point anyone who thinks “the government” is, is able to, is willing to, is going to, actually apply its exclusive monopoly of force against the predators to this fairly recent article from Yves Smith, who I think is allowed to continue to be so vocal and visible just because her Speaking Truth To Power merely confirms us in our sense that Resistance Is Futile:

    There are times I feel sorry for the business reporters at the New York Times. As Eddie Bernays, the father of the public relations industry, pointed out in his 1926 book Propaganda, half the articles on the front page of the Grey Lady back then were what he called propaganda, as in they were covered at the instigation of business or political interests who were seeking to bring the public to accept their point of view.

    Now the problem is that much of what passes for journalism these days runs afoul of the old Yankee saying, “Fool me once, shame on thee. Fool me twice, shame on me.” Anyone who has been paying attention to the news will recognized that some of these stories are not just obvious plants, but they are simply not credible. That’s not saying the facts are inaccurate, it’s the storyline that’s a howler. And it is also fair to point out that the slant an article winds up with may not be the doing of a reporter so much as his editor.

    The latest illustration is an article by Ben Protess in the New York Times titled Prosecutors, Shifting Strategy, Build New Wall Street Cases. At least in the web version, this is the picture immediately under the headline:

    I’m not sure whether this picture is an effort at Big Lie imagery, or whether someone in the Times’s layout department is a subversive. But using Lanny Breuer at the face of a new “get tough with banks” posture at the Department of Justice alone fatally undercuts the article.

    In case you managed to miss it, the Frontline documentary The Untouchables had these sections involving Breuer:

    NARRATOR: FRONTLINE spoke to two former high-level Justice Department prosecutors who served in the Criminal Division under Lanny Breuer. In their opinion, Breuer was overly fearful of losing.

    MARTIN SMITH: We spoke to a couple of sources from within the Criminal Division, and they reported that when it came to Wall Street, there were no investigations going on. There were no subpoenas, no document reviews, no wiretaps.

    LANNY BREUER: Well, I don’t know who you spoke with because we have looked hard at the very types of matters that you’re talking about.

    MARTIN SMITH: These sources said that at the weekly indictment approval meetings that there was no case ever mentioned that was even close to indicting Wall Street for financial crimes.

    LANNY BREUER: Well, Martin, if you look at what we and the U.S. attorney community did, I think you have to take a step back. Over the last couple of years, we have convicted Raj Rajaratnam. Now, you’ll say that’s an insider trading case, but it’s clearly going after Wall Street. We—

    MARTIN SMITH: But it has nothing to do with the financial crisis, the meltdown, the packaging of bad mortgages that led to the collapse, that led to the recession.

    And later:

    NARRATOR: In a September 2012 speech, Lanny Breuer gave a speech explaining his reluctance to indict a major bank.

    LANNY BREUER: — the kinds of considerations in white collar cases that literally keep me up at night.

    MARTIN SMITH: You gave a speech before the New York Bar Association. And in that speech, you made a reference to losing sleep at night, worrying about what a lawsuit might result in at a large financial institution.

    LANNY BREUER: Right.

    MARTIN SMITH: Is that really the job of a prosecutor, to worry about anything other than simply pursuing justice?

    LANNY BREUER: Well, I think I am pursuing justice. And I think the entire responsibility of the department is to pursue justice. But in any given case, I think I and prosecutors around the country, being responsible, should speak to regulators, should speak to experts, because if I bring a case against institution A, and as a result of bringing that case, there’s some huge economic effect — if it creates a ripple effect so that suddenly, counterparties and other financial institutions or other companies that had nothing to do with this are affected badly — it’s a factor we need to know and understand.

    TED KAUFMAN: That was very disturbing to me, very disturbing. That was never raised at any time during any of our discussions. That is not the job of a prosecutor, to worry about the health of the banks, in my opinion. Job of the prosecutors is to prosecute criminal behavior. It’s not to lie awake at night and kind of decide the future of the banks.

    Breuer’s performance, such as it was, led to this parody:

    So having visually underminded itself, how does the article proceed? Here is its premise:

    In a recent round of actions that shook the financial industry, the government pushed for guilty pleas, rather than just the usual fines and reforms. Prosecutors now aim to apply the approach broadly to financial fraud cases, according to officials involved in the investigations.

    Really? Someone needs to tell bank investors how scared bank executives are. This is KBE, the ETF designed to match the Keefe Bruyette’s large bank index, versus SPY, the EFT for the S&P 500, for the last three months (click to enlarge):

    And in fairness, Protess does question the official position fairly high up in the story, at the start of the fourth paragraph (the usual convention in a real puff piece is to wait at least nine or ten paragraphs before a negative word is said):

    But critics question whether the new strategy amounts to a symbolic reprimand rather than a sweeping rebuke. So far, the Justice Department has extracted guilty pleas only from remote subsidiaries of big foreign banks, a move that has inflicted reputational damage but little else.

    The officialdom honestly seems to have persuaded themselves that indicting a foreign subsidiary and getting a guilty plea is a meaningful concession. Help me. That is what is so disheartening about dealing with an (at best) captured prosecutors. Their idea of what is reasonable is so distorted that is is painfully obvious that there is no reason to expect any change in behavior.

    The real tell here is the lack of any interest on behalf of the Feds, including the Schneiderman task force, to go after Lender Processing Services. I know for a fact that people with relevant expertise presented serious ideas about how to go after LPS to Schneiderman personally, so his failure to act is not a function of ignorance. And LPS was a linchpin in establishing bad conduct across the major servicers who were its clients.

    But not only could no one be bothered to go after LPS for its role in servicing abuses (more on that in future posts), they could’t even be bothered to punish it seriously for past criminal conduct. As we wrote in an earlier stage in this saga:

    The Department of Justice and the state of Missouri have each announced criminal plea bargains with one Lorraine Brown, former chief executive of DocX, the Lender Processing subsidiary best known for its price sheet for fabricating the mortgage documents a servicer, or frankly, anyone would need to claim they had standing to foreclose on your home. Funny how that particular DocX product was mentioned no where in the plea deals.

    This admission of guilt by Brown for wire and mail fraud on the federal level and fraudulent and forged document filings in Missouri now allows the Obama Administration to claim it has sent another “executive” to jail. And the bizarre progress of this case was that the Missouri attorney general had sued both Brown and LPS, and you’d expect them to cut a deal with Brown to go after the bigger target, LPS. But it’s likely Brown was not very sophisticated; she apparently went to an interview with the FBI without the advice of counsel. Rule number one is don’t lie to the FBI, and the document release Tuesday show that Brown did. And her attorneys let LPS get in front of her. The firm paid $2 million in fines to Missouri and “cooperated” in going after small fry Brown (rather than the bigger fry of LPS’ clients). Nicely played.

    Now get this: normally we favor going after executives rather than the institution when you are dealing with major banks, because the institution has legitimate businesses that have nothing to do with the bad conduct. By contrast, LPS is a comparatively small player ($2 billionish in revenues) with a deeply problematic business model. Like the ratings agencies, it is a small pockets player that acts as a liability shield for the big boys. It’s a worthy goal to take players like that out when they play fast and loose with the law.

    Remember, in the extract above, the only conduct that was admitted to was robosigning over a million documents. And the public had been trained to think robosigning, which is a fraud on the court, is no biggie.

    LPS settled for a mere $35 million, and that for robosigning alone. Fraud expert Lynn Szymoniak thinks 4 million documents could be at issue. Mr. Market thought that was a screaming bargain; the stock traded up over 7% the day the settlement was announced.

    Notice also that no one bothered prosecuting the document fabrication at DocX. We and other sites reported on how brazen they had been:

    Picture 21

    Picture 22

    So back to the Times’ sad effort to pretend the Powers That Be are serious. If they can’t be bothered to go after a second tier player where you had an executive ready to provide evidence, don’t tell us that we should believe you now. And Protess noted towards the end of the piece that the authorities might be deterred by big bank huffing and puffing:

    The strategy will face significant roadblocks.

    For one, banking regulators are likely to sound alarms about the economy. HSBC avoided charges in a money laundering case last year after concerns arose that an indictment could put the bank out of business. In the first interest rate-rigging case, prosecutors briefly considered criminal charges against an arm of Barclays, but they hesitated given the bank’s cooperation and its importance to the financial system, two people close to the case said.

    The Justice Department will also face resistance from Wall Street. In meetings with authorities, banks are trying to distinguish their activities from the bad behavior at UBS and Barclays, according to the industry lawyers. One lawyer who represents Deutsche Bank acknowledged that Wall Street was girding for battle over the push for guilty pleas.

    So I’m not sure who the audience for this play acting is supposed to be. The public knows this emperor has no clothes, yet he continues to prance around naked.


    Yah, not a good idea to open the belly, excise the tumors and get the patient up, about and into rehabilitation — you never know what that ugly, purple, bulging gobbet of explosive tissue might be connected to… might not be able to achieve hemostasis if you cut where indicated, and it’s getting to the point that even though the mopes in Main Street have queued up, buckled down, and re-filled the blood banks, there might not be enough for another transfusion… “Let it grow, let it grow, let it grow.”

    Oh, hell, who fucking cares? “And there was music, and there were wonderful roses, they tell me…”

Leave a Reply