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.
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.