Those who Benefited from Wall Street Fraud Must be Prosecuted … Including Rogue Government Officials who Aided and Abetted the Crimes

Wall Street fraud caused the Great Depression and the current financial crisis. Top economists and financial experts agree that our economy will never recover unless Wall Street fraud is prosecuted.

Yet the government has more or less made it official policy not to prosecute fraud, and instead to do everything necessary to cover up for Wall Street.  For example, the Obama administration is prosecuting fewer financial crimes  than under Reagan or either Bush.

For example, we pointed out in 2010:

The government’s entire strategy now – as during the S&L crisis – is to cover up how bad things are.

But it is not only a matter of covering up fraud that has already happened. The government also created an environment which greatly encouraged fraud.

Here are just a few of many potential examples:

  • Tim Geithner was complicit in Lehman’s accounting fraud, (and see this), and pushed to pay AIG’s CDS counterparties at full value, and then to keep the deal secret. And as Robert Reich notes, Geithner was “very much in the center of the action” regarding the secret bail out of Bear Stearns without Congressional approval. William Black points out: “Mr. Geithner, as President of the Federal Reserve Bank of New York since October 2003, was one of those senior regulators who failed to take any effective regulatory action to prevent the crisis, but instead covered up its depth”
  • The former chief accountant for the SEC says that Bernanke and Paulson broke the law and should be prosecuted
  • The government knew about mortgage fraud a long time ago. For example, the FBI warned of an “epidemic” of mortgage fraud in 2004. However, the FBI, DOJ and other government agencies then stood down and did nothing. See this and this. For example, the Federal Reserve turned its cheek and allowed massive fraud, and the SEC has repeatedly ignored accounting fraud. Indeed, Alan Greenspan took the position that fraud could never happen
  • Paulson and Bernanke falsely stated that the big banks receiving Tarp money were healthy, when they were not

 

Economist James K. Galbraith wrote in the introduction to his father, John Kenneth Galbraith’s, definitive study of the Great Depression, The Great Crash, 1929:

The main relevance of The Great Crash, 1929 to the great crisis of 2008 is surely here. In both cases, the government knew what it should do. Both times, it declined to do it. In the summer of 1929 a few stern words from on high, a rise in the discount rate, a tough investigation into the pyramid schemes of the day, and the house of cards on Wall Street would have tumbled before its fall destroyed the whole economy. In 2004, the FBI warned publicly of “an epidemic of mortgage fraud.” But the government did nothing, and less than nothing, delivering instead low interest rates, deregulation and clear signals that laws would not be enforced. The signals were not subtle: on one occasion the director of the Office of Thrift Supervision came to a conference with copies of the Federal Register and a chainsaw. There followed every manner of scheme to fleece the unsuspecting ….

This was fraud, perpetrated in the first instance by the government on the population, and by the rich on the poor.

***

The government that permits this to happen is complicit in a vast crime.

In other words, the fraud started at the very top with Greenspan, Bush, Paulson, Negraponte, Bernanke, Geithner, Rubin, Summers and all of the rest of the boys.

As William Black told me today:

In criminology jargon: they created an intensely criminogenic environment.

The government’s special inspector general in charge of oversight of the Troubled Asset Relief Program (the “TARP” bank bailouts) – Neil M. Barofsky – said today:

It was a “message to the banks ‘if we commit fraud, we break the rules, don’t worry, we’re too big — they’ll never bring the appropriate steps against us,’” Barofsky says in an interview with The Daily Ticker. “And that is why we’ve had scandal after scandal after scandal.”

This was a “global conspiracy to fix one of the most important interest rates in the world,” Barofsky continues. “[Geithner] heard this information and looked the other way. Geithner and other regulators should be held accountable, they should be fired across the board. If they knew about an ongoing fraud, and they didn’t do anything about it, they don’t deserve to have their jobs. I hope we see people in handcuffs.

Government regulators have become so corrupted and “captured” by those they regulate that Americans know that the cop is on the take.  (Even top justice officials are incredibly cozy with Wall Street fraudsters.)

Institutional corruption is killing people’s trust in our government and our institutions, which is one of the reasons the economy is faltering again.

Indeed, polls show that very few Americans believe that the U.S. government has the “consent of the governed”, a higher percentage of Americans liked King George during the Revolutionary War than like Congress today, and people are publicly discussing whether it’s a good or bad idea to “hang bankers”.

I noted 7 years ago:

I am NOT calling for the overthrow of the government. In fact, I am calling for the reinstatement of our government. I am calling for an end to lawless dictatorship and a return to the rule of law. Rather than trying to subvert the constitution, I am calling for its enforcement.

***

The best way to avoid all types of revolution would be for the government to start following the rule of law. I passionately hope it will do so.

While conservatives tend to view government as the problem, and liberals tend to view corporations as the problem, the real problem is the malignant, symbiotic relationship between corrupt officials and criminal  corporate leaders.  Without the cancerous relationship, neither side could cause so much damage.  If America returns to the rule of law, we might have a fighting chance.

The justice system may be the only thing which stands between peace and violence.   All of those who benefited from Wall Street fraud must be prosecuted … including corrupt government officials who aided and abetted their crimes, helped cover them up, or have blocked prosecution.

Iceland should be a role model:

Iceland has prosecuted the fraudster bank heads (and here and here) and their former prime minister, and their economy is recovering nicely… because trust is being restored in the financial system.

Indeed, even evangelical leader Pat Robertson agrees:

Pat Robertson discussed the banking crisis and glowingly spoke about how Iceland jailed many of the bankers who devastated their nation’s economy by taking out fraudulent loans. Robertson hailed the Nordic nation for its actions and said that Americans should deal with the financial crisis in the same way.

***

“They are putting people in jail.  Prime ministers are being indicted. They are going after banks. The people said the banks are ripping us off. We don’t like what they did, and they brought our country to ruin. Suddenly, Iceland is turning around and they look like a big success story!”

***

“We could start putting all of those bankers in jail. There was not one banker prosecuted and so many people were lying, and so-called “no-doc loans” and liars’ loans, and none of them have been held accountable.

***

Iceland is leading the way and their GDP is growing, and all of a sudden, they were in a terrible mess, terrible mess, and look what is happening!”

Category: Bailouts, Legal

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.

22 Responses to “Corrupt Government Officials Should Be In Jail / Alongside Corrupt Banksters”

  1. Chief Tomahawk says:

    Is bloggery the modern day equivalent of Madame Defarges’ knitting?

  2. somnamblst says:

    I want restitution. I was harmed and I had nothing to do with mortgage backed securities. I want my net worth back.

  3. larrr1 says:

    Sell crazy some place else.

  4. philipat says:

    The problem is well illustrated by the fact that the typical American doesn’t care (Too bust watching “Dancin’ with the Stars) and many of the rest think such items are crazy.

  5. ravenchris says:

    What name do you give lawmakers that put their careers and political parties ahead of the well being of the electorate?
    Support the 28th amendment restricting members of Congress to one term in one lifetime.
    Protect your future.

  6. lelford says:

    Barry, your work is ground breaking. Some commentators do not yet get it, and that appears obvious by their fearful comments. I worked 20 years inside the investment industry.
    I found millions robbed/skimmed from investors rightful returns while I worked there, and now find billions, and I agree with your premise that governments (and regulators) who act as handmaidens to crime, need to go to jail alongside the corrupt investment bankers. A video (linked) shows how we use this government/regulator/banker collusion to rob the country (Canada) of about one billion dollars a week……every week. No prosecutions. No justice.
    Thanks and keep up the accurate work. Larry Elford, Canada
    http://youtu.be/aNh5laKO22o

  7. willid3 says:

    not sure restricting them will actually help. consider if they dont care how they conduct the governments business (i.e. they can only serve one ) then they have no real interest in how they serve the country. and then there is the problem of short timers disease which they will have after their 1st day in Congress

  8. willid3 says:

    part of our government problem is that they believe they represent those they regulate and want to treat them as ‘customers’ when they really represent the people of the US. but thats not what the management and line workers in government think. they were captured. i saw a study once where a president has to be in office for 2 terms before the government really works for them. as opposed to their predecessors. and we know that in 2002-2009 that all regulators were working with their ‘customers’. as opposed to regulating them. and they even had PR declaring there ever living devotion to their customers!

  9. Clem Stone says:

    I really don’t understand how so many of these spineless worms in powerful positions can keep up the endless facade. Aren’t any of them tired of the oh-so-transparent bullshit and ready to unleash some honesty for a change? God, I’m sick of this movie!

  10. laughing_swordfish says:

    Justice will never happen.

    No one at DOJ or any state regulatory authority will touch this with a 100-foot pole.

    A government that uses its “discretion” to NOT prosecute crime, but rather to conspire with the criminals
    to cover it up is no government at all -rather, it is a KLEPTOGARCHY – a government of thieves.

    The only solution is an “American Spring” – and “People’s Tribunals”

    Give ‘em a fair trial …and then hang ‘em …on TV, without hoods.

  11. cyaker says:

    John Mauldin agrees (from today’s post) “I had dinner with Dr. Woody Brock this evening in Rockport. We were discussing this issue and he mentioned that he had done a study based on analysis by an institution that looks at all sorts of “fuzzy” data, like how easy it is to start a business in a country, corporate taxes and business structures, levels of free trade and free markets, and the legal system. It turned out that the trait that was most positively correlated with GDP growth was strength of the rule of law. It is also one of the major factors that Niall Ferguson cites in his book Civilization as a reason for the ascendency of the West in the last 500 years, and a factor that helps explain why China is rising again as it emerges from chaos.”

    Amazing with all the agreement The political class keeps on going and the mainstream media is in collusion. There has to be and end; however what form it will take is anybody’s guess.

  12. theexpertisin says:

    I think throwing the entire Congress in the slammer is a great idea.

    The ultimate way to avoid bad legislation.

  13. TLH says:

    This will go down as the greatest robbery of all time. Money to politicians are bribes.

  14. Jim67545 says:

    Let’s start with legislation to impose mandatory minimum sentences (or an add-on term) for anyone found to have stollen from the government (at any level.) The most obvious is such things as robbery, medicaid/care fraud, fraud or theft in the procurement process, etc. However, there could be other less obvious ones such as the post mentions. Say a 5 year add-on (to the normal sentence) for amounts stollen under $25k, 10 years for $26k to $100k, etc.

    It’s not that stealing from an individual or company is less bad. It is that stealing from the body politic is tantamount to treason and treason has always had special treatment. If such legislation were to be proposed (by a legislator with some spine) how could any member of Congress or the Senate vote against it? Are they trying to protect their own illegal activities?

    One can improve the liklihood of compliance with a law either by increased policing/audit or by dramatically increasing the cost side of the cost/benefit equasion. Then we should start talking about less “pleasant” prisons.

  15. mst says:

    This “hog waste pond,” extending from Washington to Wall Street has sprung a leak….a large leak. The Farmer, as well as the farms personal, have first hand knowledge of the leak. To fix this leak, they would have to expose the internal structure of the pond. In order to do this, they would have to stop business for a period of time. To the Farmer and the farms personal, this exposure is unacceptable….unthinkable….unpalatable.
    The Hog waste pond continues to grow. The Farmer is negligent of his duties, the farms personal is negligent of their duties. The question then is: Are we negligent if we accept their negligence?

  16. 873450 says:

    The rot goes way beyond TBTF and reforms needs to be much more comprehensive.

    “I’m ashamed of what happened in the White House yesterday, … I think it is a tragedy of the first proportion that a private corporation can be subjected to what I would characterize as a shakedown, in this case, a $20 billion shakedown. … the attorney general of the United States, who is legitimately conducting a criminal investigation and has every right to do so to protect the interests of the American people, [is] participating in what amounts to a $20 billion slush fund that’s unprecedented in our nation’s history, that’s got no legal standing, and which sets, I think, a terrible precedent for the future. … I apologize, … I do not want to live in a country where any time a citizen or a corporation does something that is legitimately wrong is subject to some sort of political pressure that is again, in my words, amounts to a shakedown. So I apologize.”
    - June 17, 2010 – Rep. Joe Barton, Texas, Ranking Member, House Energy and Environment Subcommittee – Opening remarks to BP CEO Tony Hayward during Congressional hearings on oversight and investigations into Deepwater Horizon Explosion and Oil Spill after BP agreed to establish $20 billion escrow to cover damage claims of people harmed by Gulf of Mexico oil spill.

    At the time, Barton’s candidate committee and leadership PAC received more than $1.67 million from the oil and gas industry since 1990, making him the No. 1 recipient among all House members of funds from the industry. Numerous calls, including from fellow GOP members, urged Barton to relinquish his House Energy Subcommittee membership. Barton subsequently issued an apology for his apology to BP and today is chairman emeritus of the committee.

  17. Robert M says:

    STOP MAKING SENSE!

  18. Market Panic says:

    What did you expect? A change you can believe in?

    Democrats have been traditionally in bed with the Wall Street bankster filth.

    For example, top campaign contributors to democrat Senator Schumer are Wall Street banks. Denise Rich, former wife of criminal “fat cat” financier Marc Rich (pardoned by President Clinton), had made substantial donations to both the Clinton library and to Mrs. Clinton’s senate campaign. Robert Wolf, a high-ranking UBS bankster is a personal friend of President Obama and his biggest fundraiser. Etc…

  19. [...] On the role of corrupt government officials in the endless string of Wall Street scandals.  (TBP) [...]

  20. rjb says:

    Niall Ferguson’s recent series of the BBC’s Reith Lectures – http://www.bbc.co.uk/programmes/b00729d9

    A devastating indictment on the failure of the Rule of Law in the US.

  21. allthegoodnamesaregone says:

    EXCELLENT Post!

    I think what we need is a “CLAW BACK” feature for our elected officials – so we can recoup their earnings and future pensions & benefits when it is proven they have acted in bad faith while in office. This of course in addition to prison sentences.

  22. WolfStreet says:

    I guess that “they” (politicians, regulators…) may end up telling you, in the end, that they are just “powerless” VS the big money, that they don’t really have their say on things that matter to the people.

    How is it that we still call it a “democracy”, then?