When Barack Obama donned the crusader's mantle during the 2008 presidential campaign, his web-savvy team created KeatingEconomics.com. The main video showed Charles Keating — the wealthy, politically connected poster child of the '80s savings-and-loan scandal — in handcuffs.

The video portrayed John McCain as Keating's stooge and likened the S&L crash to the 2008 Wall Street meltdown. Today's corporate villains were flashed on the screen, among them AIG, Bear Stearns, Lehman Brothers, Fannie Mae, and Freddie Mac. The opening narrator was Bill Black, a Ph.D. criminologist and lead attorney at the government's Office of Thrift Supervision. Black helped steer the brilliant federal effort that cleaned up the S&L industry, won more than 1,000 felony convictions, and recovered millions of ill-gotten dollars.

Those watching the compelling attack ad had every reason to believe Obama's approach would be just as hard-edged, and that felon-busting G-men would rout the crooks and recover our money.

Tim Geithner claims the government was blindsided last year but now can see. Critics say he needs new glasses.
Carl de Souza/AFP/Newscom
Tim Geithner claims the government was blindsided last year but now can see. Critics say he needs new glasses.
After specializing in defending rogues, Obama appointee Lanny Breuer will now prosecute them?
Kevin Dietsch/UPI/Newscom
After specializing in defending rogues, Obama appointee Lanny Breuer will now prosecute them?
Obama's point man: Attorney General Eric Holder.
Chip Somodevilla/POOL-CNP-PHOTOlink/Newscom
Obama's point man: Attorney General Eric Holder.
Joseph Cassano: AIG's most toxic asset.
Keith Waldgrave/SOLO Syndication/Newscom
Joseph Cassano: AIG's most toxic asset.
Camden Fine, who leads a trade group of 5,000 community banks, sees a pumped-up regulatory agency as "a big, hairy cyclopean beast."
Camden Fine, who leads a trade group of 5,000 community banks, sees a pumped-up regulatory agency as "a big, hairy cyclopean beast."

This was not to be.

As it stands now, there's only one federal prosecution related to the credit crash and bailout cycle, and it was begun by the Bush administration in June 2008.

Not that there aren't culprits. Bernie Madoff, Allen Stanford, and other accused Ponzi schemers are mere pickpockets compared with Wall Street's institutional buccaneers, who have carted off up to $12.7 trillion — almost the size of the entire gross domestic product. They've multiplied the booty with billions in subsidies and a flood of derivatives. Today's pirates are sailing away from the light regulatory scrutiny that apparently will continue in our benighted, weakened, financially top-heavy, and bubble-addicted economy.

Narrator Black says Obama's current efforts are doomed to fail — and, in a twist, it's for lack of trying. "There is not a single successful regulator giving him advice," Black says. Obama has a fresh face, but those of his crew aren't. Black pointedly views Treasury Secretary Tim Geithner and Securities and Exchange Commission Chair Mary Schapiro as flops in the prelude to the crisis; they flacked for the financial industry's "self-regulation." Some of Obama's appointees have a history as ardent advocates for financial crooks and active foes of regulation. Because neither the Obama team nor its proposed reforms pack the requisite punch, Black predicts, "There will be far more catastrophic losses." That would be on top of the trillions of dollars already lost.

Though the public has been cast out, there's hope. Scammed consumers could get their day in court, thanks to a Supreme Court decision this past June in Cuomo v. Clearing House Association. Justice Antonin Scalia broke ranks and joined the court's four most liberal judges in ruling that the federal government cannot stop states — with more stringent laws than Washington, D.C. — from conducting crackdowns on financial crooks.

In that case, the Obama administration might have shed its crusader's mantle and defended the dark side in vain.


The nation's new top prosecutor, Attorney General Eric Holder, has a history of preferring that deviant corporations be held to no more than a "voluntary cooperation" system in which they privately investigate themselves. Under the "Holder Memo," written in 1999 when he was deputy AG in the Clinton administration, bad-boy executives and their corporations who turn over evidence to the government qualify for lenient sentences and fines; sometimes they simply walk. The consequences of their crimes often amount to only the cost of doing business.

But the administration's dull claws shouldn't surprise us: Obama was Wall Street's preferred candidate. And his team includes Wall Street insiders who appear to have no interest in making sure their former coworkers are regulated or, worse, prosecuted for their role in the financial mess.

Last spring, Holder appointed Lanny Breuer, his former partner at the major Washington, D.C., firm Covington & Burling, to head the U.S. Department of Justice Criminal Division. As chief of Covington & Burling's white-collar-crime department, Breuer was known for his rogue gallery of corporations and individuals under investigation or indictment. His clients included Halliburton, Freddie Mac, Exxon Mobil, and big pharmaceutical companies.

In 2006, Breuer represented Mario Gabelli, a billionaire broker and money manager who had been the highest-paid person on Wall Street. When Gabelli got in hot water for setting up straw entities to bid for cell phone licenses, Breuer savaged the person who blew the whistle on the scheme and kept his client out of criminal court. He also represented Canadian mogul Eugene Melnyk, who was charged with accounting fraud by the SEC, and the lieutenant governor of American Samoa, who was indicted for bribery and bid rigging.

Breuer's connection to Freddie Mac is especially troubling. One of the executives at the heart of the global meltdown was Franklin Raines, the CEO of Fannie Mae. Freddie and Fannie bought mortgages from other banks at a breakneck pace, which fueled the bubble and led to their federal bailouts and takeovers in September 2008. Politically wired — he was Bill Clinton's director of the Office of Management and Budget — Raines aided and abetted the process by orchestrating massive accounting and compensation fraud at Fannie Mae. He paid a small civil settlement and has never been criminally charged.

The Department of Justice refused requests to interview Breuer and Holder. Asked whether Raines will be indicted, a DOJ spokesperson wouldn't comment.

Another sign that Obama's administration has been slow to act is that Angelo Mozilo, Countrywide's chief during the heyday of predatory home loans, hasn't faced charges. Mozilo's case was merely channeled to the SEC for civil sanctions.

The SEC accused Mozilo and two top aides of selling $140 million in stock based on inside knowledge of the riskiness of credit that Countrywide extended; the firm told investors the loans were secure. A Mozilo email called one subprime loan "the most dangerous product in existence."

You would think AIG's Joseph Cassano would also be prosecuted. As boss of AIG Financial Products, Cassano made ungodly amounts of money by selling credit default swaps. In fact, the AIG arm sold so many of these swaps it lost track. But it's clear the total was greater than the value of AIG, which was one of the world's largest companies. The deals choked AIG nearly to death, triggered the financial crisis of September 2008, and led to the biggest bailout of all: $182 billion to keep AIG afloat as an 80 percent government-owned company. A grand jury was reportedly convened to look at Cassano. The Department of Justice won't confirm or deny the existence of a probe.

The only real prosecution related to the subprime crisis came during the Bush era. Two Bear Stearns hedge fund managers, Ralph Cioffi and Matthew Tannin, are accused of securities fraud for not telling investors in 2007 about the shaky nature of their fund — it was based on subprime mortgages — before it collapsed. While the act was typical of the times, the two are far from the top rungs of Wall Street. There seems to be little else going on in the justice process. Elite white-collar defense lawyers report no clamor for their counsel from major financial managers. Regulators talk of no demand for their services or evidence from prosecutors. As they say in the trade, there's no "buzz."


Bill Black looks more like a lumberjack than a scholar, criminologist, and bureaucrat. In 2005, he authored The Best Way to Rob a Bank Is to Own One, the definitive history of the S&L debacle as well as an insider's report. Among regulators, he is a legend who faced down U.S. House Speaker Jim Wright and the "Keating Five" senators (including McCain), who fought to protect that corrupt industry, and also overcame stiff resistance from within the Reagan administration and from Keating. Wright, who later resigned in disgrace over ethics charges, called Black a "red-bearded son of a bitch." Keating hired detectives to get dirt on Black. When that failed, the thrift magnate told his Washington lobbyists to "kill him dead." Keating ended up doing hard time.

Black always has a big smile and a ready joke, but he burns with the intensity of an Old Testament prophet, especially against "control fraud," the lawlessness that emanates from the top of legitimate businesses; it causes bigger financial losses than all other forms of property crime combined, he claims. Corporations practice control fraud through crooked accounting and perverse compensation systems, using bonus formulas that lead executives to loot their companies rather than serve them.

Now an associate professor of law and economics at the University of Missouri-Kansas City, Black has continued the fight against fraud and for regulatory controls. He is a consultant for a gamut of agencies, from the FBI, where he trained agents in white-collar forensics, to the World Bank.

In 2007, the Office of Federal Housing Enterprise Oversight hired him to investigate the problems at Fannie Mae. His 70-page report plainly outlined how Raines and his lieutenants used "fraudulent accounting" and "perverse incentives." It claims they took "unsafe and unsound risks" that "collectively caused Fannie to violate the law and deceive its investors and regulators."

Almost two years before the financial crisis broke in late 2008, Black, the FBI, and others outlined the structural problems that would wreck the economy, but Washington did nothing and continued to exercise "regulatory forbearance." In fact, the crisis did not have to happen, and there was certainly no need for Washington's panicky response to it in fall 2008.

Black vents particular ire at Geithner, who, as New York Fed chair, fiddled while Wall Street imploded; Henry Paulson (and Geithner again), who, as Treasury secretary, refused to enforce a key banking law; and Alan Greenspan and Ben Bernanke, who, as Fed chairs, were supposed to regulate banks, especially the renegade mortgage units. The two Fed chairs closed their eyes to excess and continued to blow easy money into the bubble.

Toward the end of the Clinton administration, Washington caved to the financial lobby and passed laws that promoted risk. The old conservative banking model gave way to the sleek megabank casino, which was fine with the Fed. Bernanke, then a Fed regional governor, spoke in 2004 of the new "Great Moderation," which the industry took to signal a period of ultra-lax regulation.

That lack of oversight is what led Americans last year to lose 18 percent of their wealth — more than $11 trillion. The best way to retrieve at least a significant portion of this is through prosecution, followed by forfeiture. It's what we do when we catch money launderers and Ponzi schemers such as Madoff. It's retributive justice. It fills a social need as well as an economic one.

So, where is the justice in the current crisis? Why have there been so few prosecutions and only feeble attempts to claw the money back? One reason might be that, in infamous cases such as the Lehman Brothers collapse and Bank of America's absorption of Merrill Lynch, the Fed and Treasury were intimately involved with the financial elite's deal making. It's difficult to prosecute others for securities fraud if you condoned the deals to begin with.

And there's another, more pertinent reason: The top federal law enforcement establishment is simply not in the mood. People who expect President Obama's Department of Justice to take the lead will be severely disappointed — not necessarily because the task is difficult, but because the Obama administration is showing it lacks the will.

Instead, the new administration is putting its energy into creating what it believes will be a meltdown-proof new system of elite "too-big-to-fail" banks, regulated by a beefed-up Federal Reserve.

Black calls that elite group of megabanks, such as Citigroup and Bank of America, "zombies." And they're not done feeding. All of the devilish tools remain in place, Black says, including "the subprime loans, with securitization and the credit default swaps. And the Obama administration astonishingly wants to re-create a secondary market in subprime loans — even though it cost us more than a trillion dollars."

It might seem that some sort of über-regulator is needed. But Camden Fine, a small-town banker who now leads a trade group of 5,000 community banks, sees a pumped-up, unified regulatory agency as "a big, hairy cyclopean beast" that would protect the megabanks no matter how reckless they are, and continue to favor Wall Street over Main Street. Compared with the Obama administration, America's small-town bankers look like populists.

Paul Volcker, the former Fed head and current Obama adviser, recently indicated that the White House remains committed to the concept of "too-big-to-fail," meaning the megabanks will continue to have a safety net and may ask for more bailouts. Currently, 19 financial institutions are on the protected list. Their business model hasn't changed materially since the crisis.


In one of last year's most questionable bailouts, the feds helped Bank of America buy Merrill Lynch for $20 billion. To make sure the deal went through, CEO Ken Lewis sold the BofA shareholders on the merger without telling them two salient facts: (1) the bank would swallow $12 billion of Merrill's $27.6 billion in losses, and (2) it would pay accelerated bonuses of $3.6 billion to Merrill executives.

It was such a clear case of securities fraud that Bank of America and the SEC reached a quick settlement of $33 million, a relatively skimpy amount. In September, federal Judge Jed Rakoff rejected the settlement, which didn't specifically name Lewis or any other executive, as a shady deal between Wall Street and Washington. Rakoff said the agreement "suggests a rather cynical relationship between the parties: The SEC gets to claim that it is exposing wrongdoing on the part of the Bank of America in a high-profile merger, and the bank's management gets to claim that they have been coerced into an onerous settlement by overzealous regulators. And all of this is done at the expense not only of the shareholders, but also the truth."

The judge scheduled the case for trial in February and has ordered the SEC to tell him why it didn't charge Lewis personally. The New York Attorney General's Office announced it would also file civil charges against Bank of America and Lewis. On October 1, the embattled CEO resigned and received a platinum parachute.

Such deals have fueled talk in Washington about creating one agency to oversee bank regulation, but such a monolithic regulator could make it easier for the big boys to influence it.

The cyclops theory of bank regulation that would fuse all four bank regulators into one "superagency" is actually the heart of a bill by Sen. Chris Dodd (after Obama, the number two recipient of Wall Street money in the presidential campaign). The administration and Barney Frank, chair of the House Financial Services Committee, have floated a number of other proposals. Dodd wants the Fed to lose its regulatory hold over banking and consumers (especially credit cards). Conversely, the Obama administration strives to make the Fed the über-regulator of banks and "shadow banks" such as Countrywide and GE Capital.

The idea of a super-Fed as top financial cop as well as the nation's central bank is colossal and colossally bad, and not just because the Fed is notoriously secretive — the opposite of Obama's pledged "transparency." The Fed chair is, by law, independent and doesn't answer to the president or Congress. As for Bernanke, he is an academic economist with no enforcement or justice chops who, in tandem with Henry Paulson, force-fed the nearly worthless Merrill Lynch to the foundering Bank of America.

And that story just keeps getting worse.

The House Committee on Oversight and Government Reform recently investigated the federal outlays that helped Bank of America buy Merrill Lynch. During the hearings, Ohio Rep. Dennis Kucinich showed through internal Fed documents that Paulson and Bernanke ignored "evidence that the Bank of America withheld information from its shareholders about mounting losses at Merrill Lynch before the crucial shareholder vote on December 5 — a potentially illegal act." In short, the Fed and Treasury have been accused of condoning a titanic securities fraud. But government approval of an offense often makes it more difficult to prosecute the culprit criminally, which might be why Lewis hasn't been indicted.

Maybe that's why the government hasn't nailed Lehman Brothers and its CEO, Richard Fuld, for securities fraud. He puffed the stock to investors while the firm was on the brink of bankruptcy a year ago. It's well known the Fed and SEC had camped at Lehman with full access to books and financial records after Bear Stearns had burned down six months before. So Fuld might draw a pass too.

The Fed's obsession with secrecy is another major problem. Take Congressman Ron Paul's popular bill to subject the central bank to audits like every other federal financial agency. The Fed vindictively pushed back, warning the bill could cause the Fed to raise interest rates.

In August, a federal judge granted a Freedom of Information Act request by Bloomberg News to reveal the identities of banks that borrowed from ten Federal Reserve programs during the peak of the financial crisis last fall, the dollar amounts, and the collateral pledged. The Fed claimed the material was confidential and would hurt the banks' competitive position. U.S. Rep. Alan Grayson, a Democrat from Orlando, says, "One way or another, the Fed is going to have to come clean."


Derivatives are the costliest, riskiest form of gambling on Earth. They work like this: As soon as hedge funds, investment banks, and big-time short sellers sense a bond is flailing, they pile on derivatives to make millions in what are, in effect, side bets on the failure. As we learned the hard way in 2008, just about everyone, including the system itself, loses when these side bets win.

Geithner told Congress the government was "blindsided" last year by the explosive risk of the derivatives market but can regulate it now. That's wrong on both counts. Everyone in Washington knew or should have known the risks in 2000, when the government stopped regarding these complicated bets as felonies and started calling them "investments."

But all hope is not lost. The administration has an 80-plus-page proposal called the Consumer Financial Regulatory Agency (CFRA), and it has support from congressional Democrats. The CFRA would wrest consumer-protection powers away from the Fed, assuring that the insurance industry, retirement plans, and financial consultants and planners would fall under government oversight. Critically, CFRA could allow scammed consumers to go to court against the securities industry. Any claimant who has been through the securities industry's kangaroo court might prefer the courts of Iran.

Of course, the financial industry's lobby, the most powerful in recent American history, has won every major legislative battle in the past 20 years. Wall Street's lobbyists and their congressional allies can be expected to fight hard. They'll call in all of their markers to ensure that securities fraud and other financial crimes won't be heard in front of hometown juries.

But the money lobby will have more trouble beating down this reform because of the Supreme Court's Cuomo v. Clearing House Association decision. The 5-4 opinion this past summer appears to give the go-ahead to states to pursue big-time financial criminals even if the federal government won't.

Washington's soft-core approach to the epic financial fraud that caused the crash remains difficult to understand. As Bill Black says: "When you don't prosecute, things don't get better."

They're not getting better — or safer. Credit is tight as a tick, especially for consumers. And people want justice. They've lost savings, homes, jobs, and retirements. Foreclosures continue to rise. But it almost seems as if Bernie Madoff's 150-year sentence for a scheme that had nothing to do with Wall Street's meltdown is supposed to cover all the crooks, and that we're supposed to be satisfied.

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