The “Datapoint of the Day” comes from the NYT column we referenced yesterday: The mind-boggling drop in Justice Department criminal referrals over the past decade.

I find this specific factoid astounding:

“Data supplied by the Justice Department and compiled by a group at Syracuse University show that over the last decade, regulators have referred substantially fewer cases to criminal investigators than previously.

The university’s Transactional Records Access Clearinghouse indicates that in 1995, bank regulators referred 1,837 cases to the Justice Department. In 2006, that number had fallen to 75. In the four subsequent years, a period encompassing the worst of the crisis, an average of only 72 a year have been referred for criminal prosecution.”

This is more “Nonfeasance” — that is what I accused the Greenspan Fed of doing in Bailout Nation. It is also what the Office of the Comptroller of the Currency did and what the Office of Thrift Supervision engaged in.

They did not do a bad job int he discharge of their duties. THEY REFUSED TO DO THEIR JOBS AT ALL. They simply refused to discharge their legal obligations, because the people in charge did not believe, philosophically, in regulations.

This is yet another crime we should be prosecuting people for. It is no different than safety regulators who failed to inspect carnival rides and 100s of children died. The bank regulators who refused to discharge their duties for ideological reasons should be prosecuted. That means investigating John Duggan and John M. Reich for nonfeasance. How are they any different from people who took payoffs from carnies and allowed children to die on unsafe rides?

Consider how bad it was under these to radical deregulators: We’ve mentioned this stat previously, but its worth repeating: Referrals for criminal prosecution plummeted under the Bush administration fell by 95%. While I have been frustrated by the poor policy and personnel choices Obama has made — and continues to make — the Bush administration was uniquely incompetent when it came to filling regulatory positions with anti-regulators. (Think Harvey “Shred-’em-before-the-subpoena-arrives” Pitt as SEC chair).

Its no surprise that these criminally negligent appointees did not do their jobs. These so-called regulators were far too cozy with the regulated. Friends, pals, drinking buddies. And so, they failed their charges, and left the taxpayer at the mercy of thieves.

• Why was John M. Reich, a former banker and Senate staff member appointed in 2005 by President George W. Bush, uninterested in prosecuting Countrywide or Angelo R. Mozilo, its chief executive? Reich said that “he was a good friend of Mozilo’s.”

• Why were FCIC investigators (during Obama’s Presidency) told “Countrywide was off limits?”

If you want to understand why the public remains so angry about the bailouts, these facts are merely frosting on the cake. The bailouts work to prevent the government from fulfilling its duties as prosecutors. Once they get in bed with banks, they refuse to do anything to “harm” that investment.

And the public gets angrier and angrier.

Category: Bailout Nation, Bailouts, Legal, Really, really bad calls, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

43 Responses to “Why Not Prosecute Nonfeasant Regulators?”

  1. HEHEHE says:

    I would only add that the other motivation is simply campaign money. Prior to Clinton you had a Democratic party that at least in some respects kept Wall Street in check. Clinton saw the cash cow of campaign contributions that the Republicans had in Wall Street and essentially embraced them as much as the Republicans. At the end of the day neither party wants to bite the hand that feeds them . Sure they’ll call a bunch of public hearings, blow some smoke up the public’s @ss, pass a bunch of watered down legislation but at the end of the day neither party is going to put the perpetrators of some of the biggest frauds in history in jail. I am reminded of the quote of Gordon Gee, the OSU President, who said re considering firing Jim Tressel, that he’d never do that and he’s lucky Tressel doesn’t fire him.

  2. george matkov says:

    Thanks Barry! I’ve been saying this all along. Nice to have someone with some clout confirm it.

  3. BPLipschitz says:

    Angry? The public is angry? Not that I can tell. Surely not angry *enough*.

  4. Transor Z says:

    Deshaney v. Winnebago County Social Services, 489 U.S. 189 (1989)

    http://caselaw.lp.findlaw.com/scripts/getcase.pl?court=US&vol=489&invol=189

    Held: A State’s failure to protect an individual against private violence generally does not constitute a violation of the Due Process Clause, because the Clause imposes no duty on the State [read: Government generally] to provide members of the general public with adequate protective services. The Clause is phrased as a limitation on the State’s power to act, not as a guarantee of certain minimal levels of safety and security; while it forbids the State itself to deprive individuals of life, liberty, and property without due process of law, its language cannot fairly be read to impose an affirmative obligation on the State to ensure that those interests do not come to harm through other means.

  5. “…And the public gets angrier and angrier…”

    Well, you know, for those that might not be interested in being ‘Good Germans’…

    Police Increasingly Peeping at E-Mail, Instant Messages
    April 14th, 2011

    This article ignores the existence of the NSA’s large scale, warrantless intercept program that’s running inside the U.S.

    Via: MacWorld:

    Law enforcement organizations are making tens of thousands of requests for private electronic information from companies such as Sprint, Facebook and AOL, but few detailed statistics are available, according to a privacy researcher.

    Police and other agencies have “enthusiastically embraced” asking for e-mail, instant messages and mobile-phone location data, but there’s no U.S. federal law that requires the reporting of requests for stored communications data, wrote Christopher Soghoian, a doctoral candidate at the School of Informatics and Computing at Indiana University, in a newly published paper…”
    http://cryptogon.com/?p=21803
    ~~
    from a not, too, distant Time ago..

    “…The Hollerith was used to tabulate and alphabetize census data. Black says the Hollerith and its punch card data (“hole 3 signified homosexual … hole 8 designated a Jew”) was indispensable in rounding up prisoners, keeping the trains fully packed and on time, tallying the deaths, and organizing the entire war effort…”
    http://www.amazon.com/exec/obidos/ASIN/0609808990/ref=nosim/cryptogoncom-20
    ~~

    if People cared to ponder, should give ‘Facebook’ another layer of meaning..
    ~~
    but, hey (as was, just, said) “…Sure they’ll call a bunch of public hearings, blow some smoke up the public’s @ss, pass a bunch of watered down legislation but at the end of the day neither party is going to put the perpetrators of some of the biggest frauds in history in jail…”

    so, we’ve that going for us~

  6. royrogers says:

    george matkov Says:

    April 15th, 2011 at 8:15 am
    Thanks Barry! I’ve been saying this all along. Nice to have someone with some clout confirm it.

    …………………………………………………

    I too commend Barry for speaking the truth and informing the public.

  7. Alex says:

    Please don’t forget plain old self-serving laziness. Finding any old excuse for not doing work is nothing new. But the thinking man’s approach is to point out great cosmological truths that underlie the brilliant decision to do nothing. Even better, its a wise strategy to appear to do something, but really not do anything meaningful. Please do show up for work, conduct supervisory activities (exams, etc.), but guide your activities so you don’t find ANYTHING. And if someone is just forced to find something, then minimize its importance by saying its an outlier or whatever.

    It always amuses me when a regulator says they don’t believe in regulation. If that is true, than what the hell are they doing in that job?! What should a funds management company do with an employee that says such businesses are parasites? I believe showing that person the door would be good for all.

  8. dead hobo says:

    BR Observed:

    If you want to understand why the public remains so angry about the bailouts, these facts are merely frosting on the cake. The bailouts work to prevent the government from fulfilling its duties as prosecutors. Once they get in bed with banks, they refuse to do anything to “harm” that investment.

    reply:
    ———–
    Hence my belief that the US is approaching bankruptcy, which will precipitate a world wide depression within a few years, starting possible as soon as the end of next year. It will start small, but relentlessly grow over a period of a couple of years into a massive economic calamity. We have a massive deficit and a massive national debt. We have a population with a strong belief in entitlements and a political class that will fly high cover for their constituents to preserve these entitlements. Republicans want to subsidize rich people with defenseless sick elderly people since they can no longer do it as effectively with borrowed money. Democrats want to give free stuff to everyone. As a result, people will continue to lose respect for the rule of law since Washington protects those who scam the most while being the wealthiest. There is nothing except rhetoric to battle the trend. In the simplest terms, the US is nearly broke and no amount of diddling with will fix it.

    At first, interest rates will rise because the UST will have trouble selling debt. The Fed will have to accommodate and raise short term rates to avoid a vertical yield curve, or monetize this debt and create more asset and commodity inflation. High rates will stifle the economy, as will high commodity prices and the resulting inflation. Remember, all of this is being done because the US can not live within it’s means and must borrow about 40% of it’s annual budget, according to the graph printed in this space a few days ago. At some point, this bubble will burst like all other bubbles have burst.

    Massive deflation will be one result. Prices will fall to the level of average income. Asset values, including silver and gold and housing, will be among those things that fall greatly in value. The rich will pay dearly from this economic shift in nominal terms, but will still be wealthier than the rabble unless their wealth was debt financed. Then, they’ll most likely jingle mail their lenders, which will create an interesting free-for-all.

    This future is obvious and pending unless the US starts to live within it’s means. This is a likely impossibility since no effort has been expended, ever, in this regard. The little countries in Europe are foreshadowing for the US reckoning. More Fed monetization of US debt will only push the date down the road a little further. Being a holder of cash will be the best way to weather the storm at this time.

    I plan to make as much from Fed monetization as possible. Hopefully, rising oil prices won’t put a dent in this too soon. Then, when QE2 ends, the flight to safety will provide bond fund capital gains. After that, either economic recovery will raise the equity markets for another profit run, or my cash stash will remain cash until rates start to rise enough to provide decent returns from savings.

  9. bobmitchell says:

    This is a byproduct of electing people who, as part of their campaign promises, say they will make government smaller. When has that ever happened?

    Appointing John Bolton, a UN critic, to the UN.

    The insanity continues, and there is no blame to be placed. They were very open about their beliefs to begin with. In most cases they want to destroy the institutions that they wish to be elected/appointed to. It is their core belief.

    Peter Schiff is the gold standard. Rail on about the government and how screwed up it is, set up an asset management business, with core holdings out side of the US, and then watch what happens. If he would be elected, which I doubt, he would be in a very good position to make his foreign investments worth more.

    This is all way too complicated to be broken down into a sound bite for TV, so don’t expect anything to change anytime soon.

  10. HEHEHE says:

    People who see things for what they are may be angry; the vast majority of people are satisified with running up their credit cards and watching Dancing With The Stars.

  11. mitchw says:

    I just refuse to single out the banksters. In 2005 I was told by a friend working for the IRS that they knew about all these criminal mortgages being created at the time. But weren’t going to go after them.

    And didn’t Paulson lead the charge to get the SEC to relax capital requirements on Ibanks? Wasn’t the quid pro quo that the SEC would get to more closely scrutinize those banks? Well, they didn’t do that under Cox.

    DC loves it that public are angry at the banksters, but barely know the difference between a synthetic, a swap, and a ‘sure thing.’

  12. wally says:

    The difficulty with prosecution is: whom do you prosecute? You might have hard-working lower-level investigators who know full well that their superiors will not follow through on recommendations. Or you might have zealous upper-level regulators who know they will get thumped by the local politicos… even up to the Senate level… when charges are filed.
    So you go after the regulators and, as we all know, the mess will roll downhill and land on the first person who does not have the clout to protect him/her self. Guilt or innocence is no factor.
    I think we have to accept the fact that our systems no longer work as intended. This was a pretty good country a few decades ago, seems like, but it is not now. Tweaking things isn’t going to fix that and we are nowhere near the point of taking action for major change.

  13. Bruman says:

    Back to my 1940-s era analogies: this might be sensible, but it does feel a bit like prosecuting concentration camp prison guards (who do deserve punishment for collaboration) while letting the main organizers and beneficiaries go free. So it’s just one piece in a larger justice puzzle.

  14. diogeron says:

    http://www.huffingtonpost.com/2011/04/13/larry-summers-financial-industry-interview_n_848701.html

    OK, Barry, take a look at what Larry Summers says here and you’ll likely forget all about that big check you just sent to the IRS, at least for a few minutes.

  15. michael-D says:

    two things, BR –

    1] suppose a licensed physician examined a patient and rendered a diagnosis of severe cognitive dissonance. the alleged doctor prescribes disnonomore™ which is manufactured by drugstocash pharmaceuticals; a company in which the practicing doctor has a large financial stake. the patient dies and the autopsy reveals s/he was actually suffering from a form of meningitis which, if properly treated, has an excellent prognosis. but instead of mitigating the problem, the disnonomore™ actually made the meningitis worse. wouldn’t / shouldn’t the doctor loose his license to -practice- medicine and wouldn’t / shouldn’t he be prosecuted for any number of violations? and how does this not describe the NRSROs? were they not licensed and given extra-special recognition by uncle sugar? did they not act in their own best interest, in violation of that ‘license’? and did they not kill a multitude of patients? how is it they’re not subject to prosecution for ‘expressing their free speech rights’?

    2] angry? we obviously travel in VERY different circles. in your world people actually know some of what went on and is going on. some of them don’t like it whilst others undoubtedly continue to benefit from it. in my world, people not only don’t know, they don’t seem to WANT to know. they don’t get it but continue to argue about guns, gods, gays, evil lib’s, dastardly conservatives, and who got kicked off of dancing with the washed up stars last night. and oh, who’s favored in this weekend’s baseball/basketball/football game. it appears that we’re getting the gov’t they deserve.

  16. CurrencySpider says:

    Angry public? Far from it.

    Our public is definately NOT angry. They have ipads that voice back at them, facebook to inform the world about diaper changes and fantasy baseball to pretend. Ask a physician what a derivative is and they will think back to calculus class. CDS? MBS? Securitization? all nonesense and irrelevant to society.

  17. KJ Foehr says:

    Yes, that would be fitting a corptocracy such as ours. Prosecute some of the borrowers, and some of the regulators (because it is all the government’s fault), and leave the bankers who made bad loans with foreknowledge and the rating agencies who were misfeasant in place and untouched.

    “The report finds Washington Mutual continued its aggressive foray into high-risk lending because of the “gain on sale.” When repackaged and sold to investment banks as securities, higher-risk loans would yield more profits for the bank.” … “When WaMu failed in 2008, it was not a case of hidden problems coming to light,” the report concludes. “The bank’s examiners were well aware of and had documented the bank’s high risk, poor quality loans and deficient lending practices.”
    http://www.huffingtonpost.com/2011/04/14/well-aware-of-bubble-washington-mutual_n_849435.html

    Did these “nonfeasant” regulators have willful intent to harm? Did they violate any laws? Did they take payoffs to not report cases? Were the reporting criteria changed? If so, how can you prosecute the regulators when the economic / political philosophy changes and the criteria and regulations are changed as a result? Who set the policy that the regulators were obliged to follow? If anyone in government is to blame it is that person.

    Laws may have been broken by regulators, I don’t really know. But I feel strongly about one thing: no regulator should be prosecuted until several bankers and bond raters have been prosecuted first. The criminal negligence was theirs, not the regulators.

    The regulators only changed their operating procedures to fit the new laissez-faire philosophy and enable a freer marketplace. This is unwise, for sure, but not criminal, imo. And I seriously doubt they did it without being instructed by others at a higher level.

    Go after the real criminals first, not the pawns caught in the game.

  18. O, and the other thing..

    along the Lines of this anecdote: “…I just refuse to single out the banksters. In 2005 I was told by a friend working for the IRS that they knew about all these criminal mortgages being created at the time. But weren’t going to go after them…”

    Anyone want to, still, think that this Episode wasn’t ‘green-lit’, from the Top ?

    http://ampedstatus.com/part-iv-the-financial-coup-detat-the-economic-elite-vs-the-people-of-the-united-states-of-america/

  19. FS says:

    Although I don’t totally share your anti-banker venom I think your point about regulators/industry-area to be regulated is pretty accurate but cuts across all sectors of the government. We have a government that is too large, too ineffective, too far afield and one political party thinks that the answer to that is more government.

    I don’t think that ends well.

  20. TheUnrepentantGunner says:

    Here’s where I disagree with you Barry, and this is a strong but respectful i hope

    I dont disagree that this information should make you mad. Not on any of your first several paragraphs.

    I deeply disagree with you that the public is still angry. Oh maybe some coworkers of ours are. Maybe some people in the industry, that are well read are.

    But to the average american, people angry at the bailouts are confused easily with the Tea Partiers, and all get lumped into the same angry bucket.

    I could ask my wife, who’s heart is about as far away from the world as finance asnd numbers as possible, about bailouts, and I think she’d only get mad if it made the 6:30 news (the national nightly news), or if shes in the mood and it was the feature of a sunday morning roundtable on network tv. Even then she’d get mad for 10 minutes, then get upset about what might have happend to the smithsonian had the governmetn shut down.

    She doesn’t even piece the two together (however tenous that might be).

    I respect your ability more than you know to work both crazy hours, seemingly not sleep more than 4 hours a night, and still be a man of the people, but if you joined say… a local coed soccer or volleyball league (I know you have clients to meet), and had a drink with them after the game, people dont really process it, and if they are upset, they can’t piece it all togehter. I’d argue in some sense as time travels further, the bad guys, who have won already pretty much, will win by wider and wider margins.

  21. VennData says:

    I’d be happy is they’d just imprison Phil Gramm and his wife…

    http://online.wsj.com/article/SB10001424052748703983104576262763594126624.html?mod=WSJ_newsreel_opinion

    …but the Wall Street Journal gives a forum for this criminal to state his sophistries. Phil Gramm the guy who said Clinton’s tax hikes would wreck the economy is now saying Obama didn’t do enough to get us out of the Bush recession. What does he expect? ..For Obama to raise taxes like Reagan did? That’s right Reagan RAISED taxes on everyone except the top 1% you brainwashed GOP genuflectors… six times!

    http://old.nationalreview.com/nrof_bartlett/bartlett200310290853.asp

  22. AHodge says:

    yeeah
    though to restate charlie sheen ( wall st) you are kickin ass and not taking names)
    who? instructed FCIC investigators to put countrywide “off limits”
    but thanks for naming duggan reich pitt

  23. davver1 says:

    I’ve actually considered becoming a regulator in the FIRE sector. An old co-worker is trying to recruit me. Its a really raw deal in a lot of ways:

    1) I will earn significantly less money. Also, they have been in a salary freeze for three years plus furloughs.
    2) I will have less freedom and independence at my job (its government, after all).
    3) I will be participating in DB plans that definitely disadvantage someone at my age.
    4) Since I’m young and new I’d be the first laid off under FIFO, and job security ain’t what it used to be.

    And now you want to prosecute me if my underfunded and undermanned regulatory body fails to follow up on all of the requests we get. Christ man, no wonder I’m so damn hesitant. The only people working at that office are people who got laid off during the recession and have no choice.

  24. Moss says:

    No one in a position of authority has the courage. It would represent a self indictment of the system by which the elite kleptomaniacs have pilfered the country for their own gain. Until the criminals are held accountable, their accomplices are not even on the radar. Like the Enron fraud, they got the perpetrators, then the accountants but never the regulators.

  25. Frank Mayo says:

    Because…
    ‎”Imagine a wonder-plane subjected to an examination of the most elaborate kind, and it is established that, in the heart of the mechanism, there is a fault, almost impossible to detect, which absolutely guarantees that the plane will rise easily into the air, and then, once it is there, will, in the same moment, turn over and plunge earthwards, into a crash…”- Wyndham Lewis

    The fault of the wonder-plane excerpted from The Demon of Progress in the Arts, was that the airplane’s designer had not a love of flying, but an insane hatred of flight. How different are we when we choose to continually elect candidates who tell us that they are running “against” government!

  26. Bill Wilson says:

    If government officials, under Bush or Obama, told prosecutors that Country Wide was off limits to prosecution, why aren’t those government officials guilty of conspiracy?

  27. mcmaaaaath says:

    Why do you always make everything into a democrat vs republican thing? You really, really detract from your own argument when you make this into mainly an us vs them thing. The change in the presidency and congressional control has done ZERO to make this situation better.

    This is about the political class, whether they are republicans or democrats, protecting the financial elites due to wall street’s political power.

    I am generally against increased regulation, but I am all for enforcing good laws already on the books (like fraud laws). And if I were in charge of bank regulation, you can be DAMN sure I would have referred 20,000 cases per year to the Justice Dept in 2006-2010.

    So please do not make this a “pro-regulation” vs “anti-regulation” or dem vs repub thing. This is about the criminal politicians and regulators, ALL of them, protecting their criminal buddies at the banks. They protect them from good laws that everyone agrees with, (again, anti-fraud laws) so this cannot POSSIBLY be about whether they are for or against regulation in general.

    This is NOT about ideology, or else we would have seen a sweeping change while the democrats were in charge in 2009 and 2010. But we did not.

  28. willid3 says:

    mcmaaaaath, maybe its not as much as an ideology thing as a job thing. all politicians jobs are to get elected. to do that takes money. and where is the money ? wall street. the elite top 1%, and corporations. while it may not be all ideology, some wouldn’t consider regulating, even if their job didn’t depend on not doing it. as it is, their jobs depend on them not regulating and protecting the country any more. though not really sure that it ever did, and that we perceive that they did in the past through rose colored glasses a time that never existed as we though it did

  29. James says:

    They did not do a bad job int he discharge of their duties. THEY REFUSED TO DO THEIR JOBS AT ALL. They simply refused to discharge their legal obligations, because the people in charge did not believe, philosophically, in regulations.

    I read you BR not only because of what you report, but how you report . . . the relentless, in-your-face style that doesn’t mince words or suffer incompetents, political hacks and professional excuse-makers.

  30. Greg0658 says:

    us vs. them ..?.. lets widen to a bigger picture .. because its all about survival and control

    The Clergy – First Estate; The Nobility – Second Estate; The Commoners – Third Estate; The Press – Fourth Estate; The Bloggers – Fifth Estate (1/3 learners 1/3 reformers 1/3 status quo)

    I believe:
    The clergy want their place back in the scheme of days past – forming morals and the place the indigent go for help.
    The Nobility want those same items of the church because it shapes capitalism and caring for the indigent is money in the pockets. Gotta mention “where the good times are” (sorta).
    The Commoners just want to get through life and have a good time.
    The Press want their place back in the scheme of days past – forming morals – telling the truths (and 1/2 truths) for all the above.
    The 5th Estate – the new voice (me, you, us) want all that too.

    http://en.wikipedia.org/wiki/Fifth_Estate

  31. Lugnut says:

    If they won’t prosecute private sector bankers, I find it equally difficult to believe they would go after fellow Federal workers and regulators. Reminds me of the old joke about why sharks won’t eat lawyers.

  32. digistar says:

    Mark E Hoffer, would failure to raise the national debt ceiling in the near future (and the resulting chaos) harm the elites who have stolen our country?

    Since both Obama and Boehner have said the ceiling MUST be raised – maybe they know their goose will be cooked if it isn’t.

    So, maybe that chaos would be a good thing, since most of us are destined to be ruined anyway. Let’s take the elites down with us and start over with a new economic and political system.

    Does that make any sense?

  33. DeDude says:

    sorry digistar @ 12:05; when the whole freekin wiggly tower falls down the majority of the hurt does not come to the elephants on the top, but to the ants on the bottom.

  34. toddie.g says:

    I get pissed off reading this, but I just feel the average American is either too lazy, too apathetic, too ignorant to care, or in the case of Fox News viewers too partisan to find a problem with your point, Barry. We get the government we deserve, because basically we as a people suck at politics. When one of the major political parties in this country view government as the problem, should we be at all surprised when they put feckless people in charge of important government institutions who screw up, thereby proving their point that government is the problem? It’s a brilliantly evil strategy.

    Speaking of sucking at politics, just where is Eric Holder. I nominate him for 2nd worst Attorney General of all time, barely failing to beat the all-time worst Alberto (“I can’t recall”) Gonzales. What has Eric Holder accomplished since 2008?

  35. mcmaaaaath says:

    willid3, All I’m saying is that I hate extraneous regulation, and would probably be called anti-regulation by Barry if he knew my views. But that only applies to BAD or unfair or unneeded regulation. Laws against stealing and committing fraud are not a matter of ideology. Everyone agrees with them pretty much.

    Some people though, refuse to enforce them. That is because it personally behooves them to sit on their hands, not because of their ideology with respect to big or small government. And again this is shown by a lack of change in 2009 and 2010 numbers.

    I agree with Barry though that these people should be prosecuted.

  36. praeco.4col says:

    mcmaaath,

    From the 1980s onward we have seen increasingly greater and greater degrees of belief both within and outside of political circles that deregulation and a looser reign on the “free market” would lead this nation to greater prosperity. Somewhere along the way that trend shifted from sound approaches to improving the overall commercial environment to a mindless doctrine that insisted that the “Magic of the Free Market” would make everything better in all cases. Deregulation that started in piecemeal fashion in the 90s soon became en vogue s not so much because it was sound policy but because it provided cover for simpleminded greed and cronyism.
    What started as a reasonable approach to improving both the government and the business environment in this country has now morphed into full regulatory capture of the government by large money interests and the problem is that the ideological infection is so deep that entire agencies have been compromised (deliberately) from the top-down.

    So contrary to your belief that regulatory fraud or malfeasance only happens through the failures of a few corrupt individuals, it is indeed possible for an entire institution to convince itself that it is doing “good” by blessing certain activities because they appear to fit a larger narrative, even if many individuals in their heart of hearts have the sneaking suspicion that these activities could easily lead to abuse…. an it is indeed possible for an entire political culture to become so deluded by a particular ideology that it has to experience deeply negative consequences and the limits of that ideology before it learns to shift course. So yes, fraud and abuse can be tied back to ideology and in some cases that ideology is directly related to the smaller government movement, even if its beginnings were sound, well intentioned and necessary. It could be said that what we are experiencing right now are versions of lessons that we were supposed to have learned from 1900-1930. Maybe this all comes in cycles, but I would hope that we would eventually learn to hold two, seemingly contrary truths in our heads at one time. The current knee-jerk partisanship and ideological blinders (your response included) suggests otherwise.

  37. Fred C Dobbs says:

    Barry, I like your provocative style. Why not prosecute criminal civil service government employees? This assumes a fact yet to be proven: it assumes they are criminals. What evidence that suggests they committed any single crime leading up to or since the housing crisis. They are supposed to examine, regulate, and supervise financial institutions. “Examine” means to check the bank’s books for mistaken or fraudulent entries, and see if the reports the banks file monthly are true and complete. “Regulate” means to write and re-write regulations that prescribe what banks can and cannot do, so, if the banks stray outside the permitted area of activity, those that stray can be prosecuted. But they don’t have their own prosecutorial resources. They make ‘referrals’ to the FBI, and it investigates further, and the FBI refers the results of their investigations to the appropriate US Attorney. However, all three have discretion. It is not every violation that is prosecuted. The bank supervisor can exercise ‘administrative forbearance’ and not refer to the FBI, the FBI can exercise ‘administrative forbearance’ and not refer to the US Attorney, and the US Attorney can exercise ‘administrative forbearance’ and refuse to prosecute, all for practical, rather than political reasons. The US Attorney may decide not to prosecute for a lack of resources. Nevertheless, the FDIC has done a pretty good job of shutting down hundreds of Too Small To Be Too Big To Fail banks not meeting regulatory-required minimum capital and reserves. It is the TOO BIG TO FAIL BANKS that the FDIC has failed to shut down, and this may be attributable to the fact that the FDIC’s resources are limited too. But, it is also possible that one or more TBTFB executives have been referred by the FDIC to the FBI and the FBI is investigating the referral or, if finished, has referred the results to the US Attorney who is sitting on it, exercising ‘administrative forbearance.’ Since the TBTFBs are headquartered in NYC and close most of their operations through the NY Fed, the proper US Attorney is the one for the Southern District of New York. Appointed by Obama on the nomination of Schumer, he is the one to ask why neither the TBTFBanks nor those who examine, regulate, and supervise the TBTFBanks have not been prosecuted. It may be he does not want to bite the hand that feeds, but he may have other reasons as well. So, why not ask? If your working memory reaches back to the Clinton Era, the US Attorney for the S.D.N.Y. was Mary Jo White, and she took some bank executives to the woodshed, and extracted some big fines (which was used in part to fund her operations, and benefited taxpayers).

  38. digistar,

    it’s an interesting thought-exercise..and, seeing how most of the ‘Wealth Claims’(Financial Assets) are denominated by U.S. FRNs, then, yes, holders of such would be impaired..

    though, to me, a bigger problem is that most people do not have the requisite Skillsets/Human Capital to 1. Navigate the change, 2. Survive on the other side of it..

    though, in the meantime, maybe, this will help peep ‘gird their loins’..

    “…As I’ve previously noted, Nobel prize winning economist Joseph Stiglitz, former Fed chairman Alan Greenspan and a host of other well-known financial names have called for prosecution, because the economy cannot recover until fraud is prosecuted.

    But Wall Street is so thoroughly in control of both parties, Congress, the White House, and even the judiciary, that prosecutions won’t happen.

    No wonder Marc Faber calls the U.S. a failed state, Kenneth Rogoff says our tax systems are “Byzantine labyrinths funneling money to powerful interests”, and experts on third world banana republics from the IMF and the Federal Reserve say the U.S. has become a third world banana republic.

    Barry Ritholtz argues that – if the prosecutors won’t do their job – we should prosecute them for nonfeasance.

    Max Keiser is a tad more radical, saying that – if the criminals aren’t prosecuted – we should hang the bankers. I’m not sure if it is a sign of public sentiment, but he got a big round of applause for saying that…”

    http://www.washingtonsblog.com/2011/04/us-failed-state-because-it-wont.html

  39. bulfinch says:

    @ praeco.4col

    Just a thanks for such a truly lucid and lettered response!

  40. YouthInAsia says:

    Is there no incentive for smaller companies in the 10s of million market cap range that aren’t politically connected yet to lead the charge to a better America? Or is it that even at this small level of size companies have garnered favor from our political overlords?

    I don’t see how this ever changes until the suits in DC lose control of it all and society reaches the point where it has to revolt. Will we ever see that day?

  41. pekoe says:

    I read the article, which for the most part focused upon 2008 and before. For obama admin, I cant really understand the reticence to prosecutions. Its not like banksters love and support Obama. In fact, they screwed him in the midterms and threw their support to the Republicans. If Obama had denounced the Banksters, linked them to the Repubs, and linked the crisis to the Repubs, I think the Dems would still control the house. Lack of prosecutions informed most people: “Why should I fight for Obama if Obama will not fight for me? 1000 mortgage agents and Banksters in jail and awaiting trial would have sent a clear message that Obama was on “our side”. I cannot understand the reticence…both immoral and stupid.

  42. DeDude says:

    Actually Obama needed the GOP to take over the house in order to get re-elected. They just put out a plan to dismantle Medicare/Medicaid in order to fund tax-cuts for the rich. This kind of revealing who you really are can only be done if you are forced to produce a budget with a plan for the future. Next they will allow tax-cuts for regular people to be sacrificed in a futile attempt to force the Bush tax-cuts for the rich to be continued (over a veto from Obama). This kind of revealing who you really are can only be forced if you are in power of the house and have to initiate legislation.

  43. [...] you should focus your efforts there: There was “Origination Fraud” that took place; Nonfeasant Regulators who refused to do their legal duty because it disagreed with their personal philosophy. MERS [...]