Sunday was the fifth Anniversary of the demise of Lehman Brothers. Here we are, five years after the onset of the financial crisis, caused in large part by reckless lending and risk-taking in major financial institutions. And still, not one executive has been charged or imprisoned! This stands in stark contrast to the savings and loan debacle in the 1980's, where prosecutors sent more than 800 bank officials to jail. In the wake of such fraud and corruption, how is it possible there are still no criminal indictments?
Punishment is not the only way to modify behavior, but it works. Instead, executives now realize that they face virtually no consequences for reckless lending, exotic investments and fraud. Thus, these actions continue.
For five years, we have heard about a grand, covert, financial scam that collapsed America's entire economy, starting with the housing industry. And for just as long, we wait for one of the fraudsters to go to jail. While we wait, the architects of America's economic collapse are still sitting comfortably in their penthouses and mansions, planning their next moves.
We are repeatedly told by the Departments of Justice and Treasury that to criminally prosecute criminal fraudsters will destabilize the economy. This is nonsense. They know it and so do we. Actually, the exact opposite is true. Failing to prosecute criminal fraud has been destabilizing the economy since 2007, at least. Continuing down this path may cause huge crashes in the future. This is because the main driver of economic growth is a strong rule of law. This strong rule of law as well as transparency were both promised, but not practiced, by the current administration. The gap between the soaring rhetoric and the tepid reality is striking.
Nobel prize-winning economist Joseph Stiglist says we must "prosecute fraud or else the economy will not recover." White House references to a recovery since 2009 are fooling none of the millions who have been out of work for several years. In fact, as stated in AOL news on June 6, 2013, Americans are, on average, 38 percent poorer than they were before the crisis.
We must be certain that highly principled behavior is rewarded. This seems axiomatic. Of course we would reward integrity, honesty and transparency. Wouldn't we? However, many of the companies which caused the economy to crater with shoddy loans and exotic investment products, both of which vaporized in value, got rewarded for going along with the flow; even if the flow was in the general direction of fraud, deceit and duplicity. I saw this up close. It was not a pretty sight. Neither is the specter of people being punished for refusing to engage in fraud, deceit, or corruption.
Nobel prize-winning economist George Akerlof has proven that failure to punish white-collar criminals-and instead bailing them out- actually creates incentives for more economic crimes and further destruction of the economy in the future. Indeed, professor of law and economics (and chief Savings & Loan prosecutor) William Black notes that we have known of this dynamic for "hundreds of years." Voluminous review of accounting fraud confirms that fraud goes up as criminal prosecutions go down. Have you ever wondered why we are still struggling and they are not? We have recently gotten several clues.
The New York Times accused the Bush and Obama administrations of endorsing a program to "look the other way" regarding white collar criminals. In a move that many think protected criminal wrongdoing in the financial industry, the very same players would go on to single-handedly cause the collapse of the US and then global economy. If they were brought to justice the first time, they wouldn't have been in a position to do the damage they did a few years later.
According to the New York Times post, the practice of 'deferred prosecution agreements,' (or 'non-prosecution agreements' in some cases,) began in the early years of the George W. Bush administration. As early as 2004, AIG reached a deal of 'deferred prosecution' with the Justice Department. Avoiding all criminal prosecution, AIG simply paid a fine of $126 million dollars and the charge of helping their clients falsify financial statements vanished. Gone. The company was free to continue any activity it wanted, however shady, with the knowledge that none of the criminals would ever go to jail. AIG would simply have to share some of the ill-gotten loot with the government.
Over the next year, other companies would cut similar deals. Computer Associates was next, followed by Bristol-Myers Squibb and Prudential Financial. The practice continued right on through very recently when JP Morgan Chase walked away with a fine that equaled their profits for one single day. Goldman Sachs reached a similar deal for $550,000,000.
Much time has passed, but nothing still from the administration to deter future recurrences as happened in 2008 and are still happening. In his testimony before a Senate panel, Former U.S. Treasury Secretary Timothy Geithner hailed progress in "repairing and reforming" the financial sector since the passage of the Wall Street reform act three years ago. Geithner's optimistic outlook does not square with the recent news that large international banks conspired to "fix" the LIBOR, the interbank loan rate, and that a leading American bank, J.P. Morgan Chase, lost almost $6 billion on botched trades -- revelations that, as former Sen. Chris Dodd (of Dodd-Frank fame) wrote "makes the strongest case ... for strong oversight of Wall Street."
But why, five years after large banks and mortgage companies like Countrywide Financial brought our economy to the brink of disaster, are we still reading about fraud, deceit, and reckless gambling by leading banks? The answer is partly that Wall Street has done everything in its considerable power to shred financial reform. But another big reason is that the Department of Justice and other law enforcement agencies have failed, inexplicably, to tap into the intelligence that financial whistleblowers have tried to offer them. These are the same "whistleblowers" who tried to thwart fraud and malfeasance.
The SEC decades-long "sweep it under the carpet attitude" ignored industry whistleblowers like Harry Markopoulos who identified the Madoff Ponzi scheme. Mr. Markopoulos spent nine years trying to get the SEC to listen to him. Nine years!
They are still not listening. President Obama's DOJ claims that prosecutors can't indict and convict financial executives just because they behaved badly; greed, they say, is not a crime. True enough. However, together with other witnesses, I alleged fraud, not greed, and that is a crime. The DOJ needs to investigate our allegations, and prosecutors could start by contacting whistleblowers. We have a lot to say. We reported it to the authorities who did nothing with it. Why then, does no one reach out to those of us who can shed light on, and perhaps avoid corruption?
Today, millions of Americans are paying more on their mortgages than their homes are worth, and millions more are facing foreclosure. Further, millions of jobs disappeared during this economic catastrophe. Meanwhile, those who cashed in while ordinary Americans lost their homes and their jobs remain at large, flush with the loot from their heists and continuing both the crimes and the cover-up. Whistleblowers like me know who they are because we were there. We're willing to talk. Why won't the government listen?
Last year a writer did a series of stories revealing one of the hidden causes of the financial crisis -- how corporate codes of silence and whistleblower abuse helped lenders flood the nation with toxic mortgages. Are we at the brink of a larger scandal? Is the government shielding the fraudsters from prosecution? What's next...abusing the whistleblowers who try to help law enforcement officials who claim to want to bring these people to justice?
Is this how it goes? The DA, DOJ, SEC, etc. ignore the evidence against white-collar criminals. They live happily ever, with huge wealth, after having ruined the lives of tens of millions of people. The President gets to talk tough at the State-of-the-Union address about tracking down white-collar criminals causing the 2008 financial collapse, but talking is all he will do. The Administration continues its laissez-faire "deferred prosecution" policy. America slips to a third rate power governed by a figure head with no stomach for holding people accountable.
The criminals get a light slap on the wrist for their unlawful conduct. Those who try to stop them see their financial circumstance radically (and permanently) reversed as they undoubtedly lose their jobs and eventually even their careers. People who observe criminal activity in Corporations no longer cry out, for they are forever silenced by the knowledge "they are all in it together." The sun sets on the "American Empire" as it has on so many "empires" before us.
Surely, we deserve better than that.