“You need a massive prosecutorial effort. I don’t see evidence that it’s happening. If we were talking baseball, it would be at the AAA level.”
-Solomon Wisenberg, former federal prosecutor.
During George W. Bush’s reign of error, the Justice Department looked the other way at all manner of fraud, but most especially Securities fraud on Wall Street. During his presidency, it plummeted 87%. Other forms of fraud prosecutions also fell. My working assumption was this was specific to W and his unique brand of incompetency.
As it turns out, that was the wrong assessment. After two years in office, President Barrack Obama is no better when it comes to “corporate, securities and bank fraud” than his hapless predecessor:
“Prosecutions of three categories of crime that could be linked to the causes of the crisis — corporate, securities and bank fraud — declined last fiscal year  by 39 percent from 2003, the period after the accounting scandals at Enron Corp. and WorldCom Inc., Justice Department records show.”
Which raises the question: Why has the USAG dropped the ball ?
Some of it involves staffing — after 9/11, many FBI agents were reassigned to anti-terror work. But that should be under a different budget, and if this was a priority, the head of the Justice department should be clamoring for more fraud investigators and those who have forensic skills.
But 9/11 is a lame excuse for a dearth of successful fraud prosecutions a decade later.
I see three big bottlenecks for Fraud prosecutions:
1) Failure to attack the problem as a systemic issue: If it were up to me, I would be using RICO statutes to attack origination fraud and foreclosure fraud.
2) Conflict of interests: Uncle Sam still has huge stakes in banks and insurers. That reduces the incentives to find wrongdoing (thereby hurting your taxpayer funded portfolio)
3) Lobbying/Campaign donations from financials: Congress remains a wholly owned subsidiary of Wall Street. Despite rules prohibiting it, there has been increased pressure on DOJ to not bring actions by Congress-critters.
Thus,we have seen little motion from DOJ against the banksters.
I continue to hold the position that the best hope for obtaining any form of post-crisis Justice will come from the State AGs . . .
Security Fraud Prosecutions Down 87% Since 2000 (December 25th, 2008)
Prosecutors Faulted on Failure to Charge ‘Bandits’ in U.S. Market Collapse
Bloomberg, May 23, 2011
This post originally appeared at The Big Picture and is reproduced here with permission.
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