In his State of the Union speech, President Obama said and proposed many reasonable-sounding things. One of them was this:
We'll also establish a Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud... financial firms violate major anti-fraud laws because there's no real penalty for being a repeat offender... So pass legislation that makes the penalties for fraud count.
And tonight, I'm asking my Attorney General to create a special unit of federal prosecutors and leading state attorney general to expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis.
Now, how could you be against that? In his speech, and indeed as has been true for his entire career, Mr. Obama deserves an A for rhetoric. But what grade does he deserve for action? Alas, he flunks.
It has now been three and a half years since the financial crisis of September 2008. Only a few months after that crisis -- three years ago now -- President Obama took office. At the time, he had an overwhelming popular mandate and huge majorities in both houses of Congress. The nation was in crisis, with unemployment growing nearly half a percent per month. The Bush Administration's policies (and the financial sector that those policies had allowed to run wild) were utterly discredited. If ever real change is possible in Washington DC, this was that time.
In that situation, and over the intervening three years, what did President Obama do? Well, we got a stimulus package, and then a year later a watered-down, absurdly complicated new law that addressed everything except the most important issues. And that's about it. Consider the record:
President Obama's personnel appointments were heavily weighted towards those who had sat by and done nothing as the housing bubble grew (Tim Geithner, Ben Bernanke), former officials who had made major contributions to causing it (Larry Summers), senior lobbyists for the worst of the banks (Mark Patterson, Tom Donilon), a former board member of AIG (Richard Holbrooke), and literally dozens of former executives of banks and hedge funds that had played major roles in causing the crisis. The new chair of the SEC, Mary Shapiro, was the former head of the investment banking industry's self-regulation body, which brought not a single enforcement action related to the bubble. Her new director of enforcement, Robert Khuzami, was formerly general counsel for Deutsche Bank, which profited by helping John Paulson create securities so that he could profit by betting that they would fail.
We got the Financial Crisis Inquiry Commission, deliberately crippled through its tiny budget (less than $10 million for its entire operation, beginning to end), limited subpoena power, and publication date conveniently just after the 2010 midterm elections. Even so, the FCIC actually did a pretty decent job, and demonstrated that the housing bubble had involved pervasive fraud on the part of the banks.
Moreover, there followed a huge wave of private lawsuits. The banks fought them hard, and have tried extremely hard to prevent depositions and testimony from becoming public. But many plaintiffs persisted, and there has now accumulated a massive record of extraordinarily repulsive, and clearly illegal, behavior. In a book that I have just finished, and which will be published in May, grimly entitled Predator Nation, I go through what is known in considerable detail, and make the case for large-scale prosecutions and asset forfeitures.
This information is already public. So what has happened as a result?
Well, the SEC has filed some civil fraud cases -- not many, and not big. Thus far, every single one has been settled with a minor fine, with neither individuals nor banks required to admit guilt. Criminal prosecutions of banks? Zero. Criminal prosecutions of senior financial executives related to the bubble? Zero. RICO cases, such as were used against Michael Milken and are routinely used against drug dealers and other organized criminals to seize their assets and forfeit their ill-gotten gains? Zero. Sarbanes-Oxley prosecutions, based on CEOs' certification of obviously fraudulent financial statements? Zero. In Mr. Obama's three years in office, not a single U.S. bank or senior financial executive has been convicted of any crime (or even prosecuted), or had their assets confiscated.
But now, it's re-election time, and Occupy Wall Street has shown simmering anger among the population. So we create a task force. (There was another one before, too, but never mind.) A week later, several bankers are arrested. They're low level patsies, who worked for a Swiss bank, and who didn't create or sell the toxic stuff; they just traded it afterwards. And the task force? Its initial personnel: a whopping 15 people in the Justice Department, and ten -- count them, ten -- FBI agents. Eventually, Justice says, the task force will have an awesome 55 people. Goldman Sachs has 32,000 employees, there are several thousand financial industry lobbyists, the FBI has a total of 14,000 agents -- but hey, I'm sure that those ten agents are the very best.
So yes, it's absurd, and rather disgusting. But it must also be said that President Obama is not alone in prostrating himself before the financial sector. Congress is no better, and neither are Obama's likely opponents in the presidential race. Newt Gingrich screamed about government interference while he was being paid $1.6 million by Freddie Mac's chief lobbyist for "conservative outreach." In Mitt Romney, we have someone who thinks it's perfectly OK to have a tax rate of 14 percent on over $20 million per year in unearned income, and who wants to increase taxes on the poor while reducing them further for the wealthy. Unfortunately, the power of financial sector money has by now produced a pervasive, bipartisan systemic disease in American politics, of which the president's recent speech is merely one example among many.