More and more Washington insiders are asking a question that was considered off-limits in the nation's capital just a few months ago: Who, exactly, is Attorney General Eric Holder representing? As scandal after scandal erupts on Wall Street, involving everything from global lending manipulation to cocaine and prostitution, more and more people are worrying about Holder's seeming inaction -- or worse -- in the face of mounting evidence.
Confidential sources say that the President's much-touted Mortgage Fraud Task Force is being starved for vital resources by the Holder Justice Department. Political insiders are fearful that this obstruction will threaten Democrats' chances at the polls. Investigators and prosecutors from other agencies are expressing their frustration as the ever-rowing list of documented crimes by individual Wall Street bankers continues to be ignored.
Meanwhile the scandals and revelations go on. The new LIBOR rate-fixing scandal led the bank-friendly and conservative magazine The Economist to run a cover about "Banksters" and to publish a piece entitled "The rotten heart of finance." People like Robert Reich are saying this could be the story that finally brings down the banks.
Where are the indictments?
But there have already been stories -- lots of stories, terrible ones -- about corruption, bribery, perjury, forgery and a dozen different kinds of fraud. There have been stories about laundering money for the Mexican drug cartels, including a new lead that surfaced this week. There's already ample evidence that Wall Street bankers have defrauded cities, deceived investors and cheated their own clients.
Some of the bankers even rewarded themselves in that time-honored tradition of gangsters everywhere: with hookers, blow and orgies.
The problem isn't a shortage of scandalous stories. We've seen a lot of those. What we haven't seen, at least here in the United States, is a single indictment of a senior Wall Street banker from the United States Department of Justice. And that's what has these political insiders concerned.
A growing number of people are privately expressing concern at the Justice Department's long-standing pattern of inactivity, obfuscation and obstruction. Mr. Holder's past as a highly-paid lawyer for a top Wall Street firm, Covington and Burling, is being discussed more openly among insiders. Covington & Burling was the law firm which devised the MERS shell corporation that has since been implicated in many cases of mortgage and foreclosure fraud.
Nobody we talked to wanted to publicly demean a public official's reputation. Few of the people who are criticizing Holder privately want to fuel the right-wing witch hunt against him, which recently led to in the Republican House's shamefully politicized contempt citation. But more of them expressed concerns about Holder, and expressed them strongly, than we expected.
The attorney general is the nation's chief law enforcement officer. But when it comes to Wall Street, they note that there's not a lot of federal law enforcement going on.
Obstructing the task force?
The Mortgage Fraud Task Force stands at the heart of the latest controversy. In January's State of the Union address, the President said that "This new unit will hold accountable those who broke the law, speed assistance to homeowners, and help turn the page on an era of recklessness that hurt so many Americans."
And yet there have been no concrete results since that announcement. One source familiar with the task force said that other federal agencies were actively participating in the process, but that the Justice Department was preventing the group from getting even the relatively meager resources promised to it by the Justice Department.
While nobody provided precise numbers, several sources said the Task Force could show concrete results with twenty or thirty more staff members. Yet Holder's Justice Department won't make them available, said one source. By contrast, Republican officials allocated more than one thousand people to investigate the savings and loan scandal.
"The other agencies have been working pretty hard on this effort," said a source. "But it's Justice's show, and they're not moving."
Political worries mount
The mood on Capitol Hill is even darker. One of the kinder words used by staffers there is "frustration" -- or extreme frustration" -- to describe their feelings the Task Force's lack of resources and results. Several of the people we spoke with expressed concern that senior Administration officials like Holder may be protecting their relationships on Wall Street because they hope to resume their careers there after leaving public service.
One Democratic political strategist expressed concerns that the Task Force's inactivity could cause irreparable damage to the President's reelection campaign, by undercutting his "Bain Capital" strategy. That strategy has been working for Mr. Obama, and Democrats on the Hill hope that it will help them too.
But if there are no concrete results from the Obama Justice Department before November, they fear that the entire strategy could be undercut. As his own contributors come under closer scrutiny, they're afraid that the President himself could be seen as "just another Wall Street politician," dealing a potentially fatal blow to his candidacy and that of Democrats further down the ticket.
No shortage of suspects
It's not as if there's a shortage of suspects for the Justice Department to pursue. We examined the role of accounting firm PricewaterhouseCoopers in the AIG scandal. Now it's been implicated in the LIBOR scandal. As American Banker points out, PwC had at least two opportunities to catch the LIBOR deceptions. We would add that auditors have a legal obligation, at least in this country, to report any irregularities before signing off on the bank's financials.
And while a British official wants false reporting of lending rates (the heart of the LIBOR story) to be made illegal, fraud and misrepresentation already are illegal. Then there are the numerous violations of law admitted to by JPMorgan Chase. In the case of GE Capital, investigators were stunned by the lack of prosecutions after the SEC identified individuals inside that bank who prepared fraudulent documents.
The Justice Department has continued to say that it's difficult to win convictions in bank fraud cases, but an old-fashioned, Mob-style prosecution recently proved them wrong. Worse, there's no evidence that this Justice Department has even tried.
What's more, until now federal investigators have appeared to ignored evidence of drug use and prostitution among Wall Streeters -- evidence which experts argue could be used to obtain convictions. "High-End Prostitute Bust has Some Folks on Wall Street Sweating," CNBC wrote last year. They needn't have worried. As prosecutors and attorneys have pointed out, it's been common practice to push criminal investigations by pressuring lower-level informants over charges like these. (Attorney Abigail Field elaborates.)
And yet these avenues of investigation have gone unused, despite the many opportunities they provided for applying pressure -- and not just over prostitution charges. As Reuters reported, the organization in question was a "high-end prostitution ring catering to Wall Street clients who often would spend over $10,000 for a night bingeing on sex and cocaine." ("High-end" refers to the income level of the clientele, in case you were wondering.)
Other opportunities have been wasted as well. Whistleblowers have been ignored, rather than sent before a grand jury in order to obtain indictments. Other crimes have been passed over, rather than used to break larger cases.
Meanwhile in the absence of punishment the bankers's behavior is getting more and more extreme, like pyromaniac children begging to be caught. Some examples:
Wells Fargo has already been implicated in the laundering of money for the Mexican drug cartels that have murdered as many as sixty thousand people, as well as having been found to have engaged in some of the most egregious borrower fraud. Now, as attorney Field notes, it's even illegally closing the bank accounts of unfriendly bloggers to extract revenge.
Despite its massive rap sheet, which includes investor fraud and the bribing of Alabama officials, and despite the SEC investigation of its "London whale" debacle, JPMorgan Chase is is defying a subpoena in California and refusing to turn its emails over to a judge. It's charged with the same kind of criminal activity that was behind the Enron scandal: manipulating energy markets.
And despite Jamie Dimon's suggestion that the head of the "London whale's" group would be forced to return her ill-gotten millions, she was allowed to resign and keep the money. There's no sign that a criminal investigation of this affair is underway, despite Dimon's own admission that laws may have been broken.
Field also points out that Barclays has been caught red-handed at similar kinds of fraud before, but they didn't stop. Without indictments, why would they? Those settlements are just the cost of doing business -- a cost someone else pays, while the criminals themselves get rich
The SEC and state law enforcement officials have been moving, issuing "Wells notices" (an SEC document sent to banks under investigation) and searching for information. That much is a matter of public record.
Where's Mr. Holder?
But there's no evidence that Mr. Holder's Justice Department has mounted a serious effort to investigate bank crime. Its first, much-touted "coordinated effort" to crack down on mortgage fraud turned out to be a PR trick, not a law enforcement effort, which the Columbia Journalism Review described with the headline, "The Obama Administration's Financial-Fraud Stunt Backfires." That's not the kind of press a President wants to see repeated in an election year.
"Democrats have been having good luck painting Romney as the candidate of the one percent," said one observer. "But that could change quickly with a few bad headlines."
While nobody we spoke with was willing to raise the subject of a Holder resignation, they did insist that time was running out for the Attorney General to show concrete results.
Without criminal investigations and indictments, bankers will continue to commit crimes. The LIBOR scandal, which implicates a number of leading banks, proves that. The Justice Department's inaction is putting the world economy at risk by allowing bankers to continue their reckless and illegal behavior.
Insiders say that its inaction is putting Barack Obama's re-election at risk, too, along with that of other Democrats. If the fate of the world doesn't spur the Administration and its Justice Department into action, perhaps the fate of its President will.