Matt Taibbi's Latest: " Why Isn't Wall Street In Jail?"

Tyler Durden's picture

From Matt Taibbi of Rolling Stone:

Why Isn't Wall Street in Jail?

Financial crooks brought down the world's economy — but the feds are doing more to protect them than to prosecute them

Over drinks at a bar on a
dreary, snowy night in Washington this past month, a former Senate
investigator laughed as he polished off his beer.

"Everything's fucked up, and nobody goes to jail," he said. "That's
your whole story right there. Hell, you don't even have to write the
rest of it. Just write that."

I put down my notebook. "Just that?"

"That's right," he said, signaling to the waitress for the check.
"Everything's fucked up, and nobody goes to jail. You can end the piece
right there."

Nobody goes to jail. This is the mantra of the
financial-crisis era, one that saw virtually every major bank and
financial company on Wall Street embroiled in obscene criminal scandals
that impoverished millions and collectively destroyed hundreds of
billions, in fact, trillions of dollars of the world's wealth — and
nobody went to jail. Nobody, that is, except Bernie Madoff, a flamboyant
and pathological celebrity con artist, whose victims happened to be
other rich and famous people.

The rest of them, all of them, got off. Not a single executive who ran
the companies that cooked up and cashed in on the phony financial boom —
an industrywide scam that involved the mass sale of mismarked,
fraudulent mortgage-backed securities — has ever been convicted. Their
names by now are familiar to even the most casual Middle American news
consumer: companies like AIG, Goldman Sachs, Lehman Brothers, JP Morgan
Chase, Bank of America and Morgan Stanley. Most of these firms were
directly involved in elaborate fraud and theft. Lehman Brothers hid
billions in loans from its investors. Bank of America lied about
billions in bonuses. Goldman Sachs failed to tell clients how it put
together the born-to-lose toxic mortgage deals it was selling. What's
more, many of these companies had corporate chieftains whose actions
cost investors billions — from AIG derivatives chief Joe Cassano, who
assured investors they would not lose even "one dollar" just months
before his unit imploded, to the $263 million in compensation that
former Lehman chief Dick "The Gorilla" Fuld conveniently failed to
disclose. Yet not one of them has faced time behind bars.

Instead, federal regulators and prosecutors have let the banks and
finance companies that tried to burn the world economy to the ground get
off with carefully orchestrated settlements — whitewash jobs that
involve the firms paying pathetically small fines without even being
required to admit wrongdoing. To add insult to injury, the people who
actually committed the crimes almost never pay the fines themselves;
banks caught defrauding their shareholders often use shareholder money
to foot the tab of justice. "If the allegations in these settlements are
true," says Jed Rakoff, a federal judge in the Southern District of New
York, "it's management buying its way off cheap, from the pockets of
their victims."

To understand the significance of this, one has to think carefully
about the efficacy of fines as a punishment for a defendant pool that
includes the richest people on earth — people who simply get their
companies to pay their fines for them. Conversely, one has to consider
the powerful deterrent to further wrongdoing that the state is missing
by not introducing this particular class of people to the experience of
incarceration. "You put Lloyd Blankfein in pound-me-in-the-ass prison
for one six-month term, and all this bullshit would stop, all over Wall
Street," says a former congressional aide. "That's all it would take.
Just once."

But that hasn't happened. Because the entire system set up to monitor and regulate Wall Street is fucked up.

Just ask the people who tried to do the right thing.

Here's how regulation of
Wall Street is supposed to work. To begin with, there's a semigigantic
list of public and quasi-public agencies ostensibly keeping their eyes
on the economy, a dense alphabet soup of banking, insurance, S&L,
securities and commodities regulators like the Federal Reserve, the
Federal Deposit Insurance Corp. (FDIC), the Office of the Comptroller of
the Currency (OCC) and the Commodity Futures Trading Commission (CFTC),
as well as supposedly "self-regulating organizations" like the New York
Stock Exchange. All of these outfits, by law, can at least begin the
process of catching and investigating financial criminals, though none
of them has prosecutorial power.

The major federal agency on the Wall Street beat is the Securities
and Exchange Commission. The SEC watches for violations like insider
trading, and also deals with so-called "disclosure violations" — i.e.,
making sure that all the financial information that publicly traded
companies are required to make public actually jibes with reality. But
the SEC doesn't have prosecutorial power either, so in practice, when it
looks like someone needs to go to jail, they refer the case to the
Justice Department. And since the vast majority of crimes in the
financial services industry take place in Lower Manhattan, cases
referred by the SEC often end up in the U.S. Attorney's Office for the
Southern District of New York. Thus, the two top cops on Wall Street are
generally considered to be that U.S. attorney — a job that has been
held by thunderous prosecutorial personae like Robert Morgenthau and
Rudy Giuliani — and the SEC's director of enforcement.

The relationship between the SEC and the DOJ is necessarily close,
even symbiotic. Since financial crime-fighting requires a high degree of
financial expertise — and since the typical drug-and-terrorism-obsessed
FBI agent can't balance his own checkbook, let alone tell a synthetic
CDO from a credit default swap — the Justice Department ends up leaning
heavily on the SEC's army of 1,100 number-crunching investigators to
make their cases. In theory, it's a well-oiled, tag-team affair:
Billionaire Wall Street Asshole commits fraud, the NYSE catches on and
tips off the SEC, the SEC works the case and delivers it to Justice, and
Justice perp-walks the Asshole out of Nobu, into a Crown Victoria and
off to 36 months of push-ups, license-plate making and Salisbury steak.

That's the way it's supposed to work. But a veritable mountain of
evidence indicates that when it comes to Wall Street, the justice system
not only sucks at punishing financial criminals, it has actually
evolved into a highly effective mechanism for protecting
financial criminals. This institutional reality has absolutely nothing
to do with politics or ideology — it takes place no matter who's in
office or which party's in power. To understand how the machinery
functions, you have to start back at least a decade ago, as case after
case of financial malfeasance was pursued too slowly or not at all,
fumbled by a government bureaucracy that too often is on a first-name
basis with its targets. Indeed, the shocking pattern of nonenforcement
with regard to Wall Street is so deeply ingrained in Washington that it
raises a profound and difficult question about the very nature of our
society: whether we have created a class of people whose misdeeds are no
longer perceived as crimes, almost no matter what those misdeeds are.
The SEC and the Justice Department have evolved into a bizarre species
of social surgeon serving this nonjailable class, expert not at
administering punishment and justice, but at finding and removing
criminal responsibility from the bodies of the accused.

The systematic lack of regulation has left even the country's top
regulators frustrated. Lynn Turner, a former chief accountant for the
SEC, laughs darkly at the idea that the criminal justice system is
broken when it comes to Wall Street. "I think you've got a wrong
assumption — that we even have a law-enforcement agency when it comes to Wall Street," he says.

In the hierarchy of the SEC, the chief accountant plays a major role
in working to pursue misleading and phony financial disclosures. Turner
held the post a decade ago, when one of the most significant cases was
swallowed up by the SEC bureaucracy. In the late 1990s, the agency had
an open-and-shut case against the Rite Aid drugstore chain, which was
using diabolical accounting tricks to cook their books. But instead of
moving swiftly to crack down on such scams, the SEC shoved the case into
the "deal with it later" file. "The Philadelphia office literally did
nothing with the case for a year," Turner recalls. "Very much like the
New York office with Madoff." The Rite Aid case dragged on for years —
and by the time it was finished, similar accounting fiascoes at Enron
and WorldCom had exploded into a full-blown financial crisis. The same
was true for another SEC case that presaged the Enron disaster. The
agency knew that appliance-maker Sunbeam was using the same kind of
accounting scams to systematically hide losses from its investors. But
in the end, the SEC's punishment for Sunbeam's CEO, Al "Chainsaw" Dunlap
— widely regarded as one of the biggest assholes in the history of
American finance — was a fine of $500,000. Dunlap's net worth at the
time was an estimated $100 million. The SEC also barred Dunlap from ever
running a public company again — forcing him to retire with a mere
$99.5 million. Dunlap passed the time collecting royalties from his
self-congratulatory memoir. Its title: Mean Business.

And the conclusion:

So there you have it. Illegal immigrants: 393,000. Lying moms: one.
Bankers: zero. The math makes sense only because the politics are so
obvious. You want to win elections, you bang on the jailable class. You
build prisons and fill them with people for selling dime bags and
stealing CD players. But for stealing a billion dollars? For fraud that
puts a million people into foreclosure? Pass. It's not a crime. Prison
is too harsh. Get them to say they're sorry, and move on. Oh, wait —
let's not even make them say they're sorry. That's too mean; let's just
give them a piece of paper with a government stamp on it, officially
clearing them of the need to apologize, and make them pay a fine
instead. But don't make them pay it out of their own pockets, and don't
ask them to give back the money they stole. In fact, let them profit
from their collective crimes, to the tune of a record $135 billion in
pay and benefits last year. What's next? Taxpayer-funded massages for
every Wall Street executive guilty of fraud?

The mental stumbling block, for most Americans, is that financial
crimes don't feel real; you don't see the culprits waving guns in liquor
stores or dragging coeds into bushes. But these frauds are worse than
common robberies. They're crimes of intellectual choice, made by people
who are already rich and who have every conceivable social advantage,
acting on a simple, cynical calculation: Let's steal whatever we can,
then dare the victims to find the juice to reclaim their money through a
captive bureaucracy. They're attacking the very definition of property —
which, after all, depends in part on a legal system that defends
everyone's claims of ownership equally. When that definition becomes
tenuous or conditional — when the state simply gives up on the notion of
justice — this whole American Dream thing recedes even further from
reality.

Read the full thing here

 

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Pee Wee's picture

Jail is for poor people, just like socialized losses.

topcallingtroll's picture

The troll is getting very very angry. It may be time for our little lobby takeover. Unfortunately it has turned out to be me, two guys, and an fbi informant. So much for any anger out there.

metastar's picture

If government won't police since it is an accomplice, then there is only one solution.

Revolution Bitchez!

But alas, this won't happen until enough people cannot eat. And if/when it does happen, nothing will change as most people have no clue about who robbed them. I do not see a good future here.

GoinFawr's picture

save it metastar, you're just playing into the tct's hands.

But keep that spirit primed.

Cleanclog's picture

It won't  happen in America until the TVs and American Idol, Jersey  Shore, and the Bachelor are unviewable.  

Maybe we're supposed to storm the cable companies and knock out all the towers.

Winston Smith 2009's picture

"It won't happen in America until the TVs and American Idol, Jersey Shore, and the Bachelor are unviewable."

Well, for me, they already are, but I get your point.

Pee Wee's picture

...and I see NFLX streaming all the above.

philgramm's picture

QE is just as much welfare as food stamps.  I bet JPM will have cable cards for the sheeple if they couldn't afford cable.  keep watching..........nothing to see here on K street

Henry Chinaski's picture

Martha Stewart went to PMITA prison.

freedmon's picture

Ya, over about $250,000 of insider trading. Just a coincidence that she's a prominent democratic donor? That was a frame-up that stank to high heaven.

jeff montanye's picture

it wasn't even insider trading!  if she had told the simple truth she would have walked.  she apparently thought she might be guilty of insider trading (almost certainly not, she was told by her broker that the head of a firm was selling so she sold) so told an awkwardly elaborate lie to federal investigators (the crime for which she was convicted).  lesson? always refuse to talk without good representation.

DeadFred's picture

When they nailed old Martha I felt so much safer.

New_Meat's picture

"...nailed old Martha..."

eweweweeewww.

- Ned

Cash_is_Trash's picture

Martha Stewart went to PMITA prison.

Who would wanna pound that shit?

To the contrary, ex-press secretary Dana Perino would be nice...

New World Chaos's picture

The Martha Stewart thing was basically the SEC's way of telling the sheeple there were no sharks in the pool.  They knew our celebrity-gawking media would run with it.

Nikao7's picture

"Maybe we're supposed to storm the cable companies and knock out all the towers."

 

ROTFFLMAO

Clampit's picture

Food inflation data point: Wendys

1. New "natural cut" fries with skin on, for that natural taste of dirt. Yumm. Wonder how much is saved (time, material, equipment, etc.) by eliminating the peeling process?

2. Now I get my 1/4lb single with cheese (this time w/o fries) and open things up thinking they forgot the cheese when I can't see it peeking out the corners. Nope, it's just about 2/3 on edge the size it used to be, less than half the area of the patty.

Same price, though ...

Lndmvr's picture

Took my wife out for the 10 year anniversary dinner. I said "whats wrong with my salad?"  she could'nt tell. I said, " No tomatoes".

barkster's picture

no, it was a tomato basil mozzarella salad....

DosZap's picture

Be glad, she would have gotten the Mexican shit fertilized kind.

juangrande's picture

I remember being in Mexico in a small town around 1990 and buying salad vegies in a local store and marveling how I could actually taste the cucumber, tomato, etc. Then Nafta happened and the US ag machine exported it's methodology. Now I go to the same store and the vegies are tasteless, just like here in the good ole USA!

DaveyJones's picture

Spanish Mission Accomplished. Our GMO corn is starting to infect their crops as well even though they've done work to resist it.  And corn is sacred to these people. They have an amazing variety with different nutrients and enviromental specialties.

juangrande's picture

I remember being in Mexico in a small town around 1990 and buying salad vegies in a local store and marveling how I could actually taste the cucumber, tomato, etc. Then Nafta happened and the US ag machine exported it's methodology. Now I go to the same store and the vegies are tasteless, just like here in the good ole USA!

juangrande's picture

I remember being in Mexico in a small town around 1990 and buying salad vegies in a local store and marveling how I could actually taste the cucumber, tomato, etc. Then Nafta happened and the US ag machine exported it's methodology. Now I go to the same store and the vegies are tasteless, just like here in the good ole USA!

juangrande's picture

I remember being in Mexico in a small town around 1990 and buying salad vegies in a local store and marveling how I could actually taste the cucumber, tomato, etc. Then Nafta happened and the US ag machine exported it's methodology. Now I go to the same store and the vegies are tasteless, just like here in the good ole USA!

juangrande's picture

I remember being in Mexico in a small town around 1990 and buying salad vegies in a local store and marveling how I could actually taste the cucumber, tomato, etc. Then Nafta happened and the US ag machine exported it's methodology. Now I go to the same store and the vegies are tasteless, just like here in the good ole USA!

DaveyJones's picture

Bought a venti starbucks latte today. It went up thirty cents

faustian bargain's picture

Indeed...Wendy's where I am has a sign on the drive-thru saying something about the cold weather impacting tomato availability (i.e. the price went up), and if you want them you have to request them specifically.

Wendy's is a bellweather.

Ned Zeppelin's picture

Tomatoes only if you ask.

Beef soon to follow.

Taco Bell already got rid of most of the beef.

 

DosZap's picture

Yep, all the stray dogs have disappeared weekly here.

Rusty Shorts's picture

 ... i haven't seen a cat in three months.

Dr. Porkchop's picture

That's not new, they were doing that here about a year ago.. funny thing was, none of the other chains seemed to have any problems sourcing tomato at the time.

DosZap's picture

You have to DEMAND them, and EXTRA dressing, and Croutons...or you get shit,nada, zilch.

And they give dirty looks if you even ask.You want it right, GO INSIDE to order.

Easy to screw a drive thru.

jeff montanye's picture

i would worry that they might be giving you a little something in addition to "dirty looks".

Pee Wee's picture

I thought you were telling a joke.

The Rock's picture

In-n-Out Burgers out here in the West are definitely smaller than what they used to be.  When I called corporate on it, they said "we never changed the size of our patties".  Then I realized the loophole: they never changed the size pre-cooked.  So they can use more fat content, which is the same size but cheaper, and of course it shrinks to a McDonald's size hamburger... At least they are still good quality.  Tricky bastards.

takinthehighway's picture

Went in to a truck stop the other day to purchase a pint of milk...the "pint" was now 12 oz.! Still $1.49...gee, they weren't making enough profit at $11.92/gallon? MOOPEC must be cutting back production of WBI (White Bovine Intermediate)...

Blano's picture

Those new fries suck wind, big time.

Alienated Serf's picture

stop eating so much fast food, you fat asses

jeff montanye's picture

crossed my mind, perhaps more tentatively worded.

ThorsteinVeblen's picture

 

I empathize and sympathize. This may help, a Wendy's coupon: https://www.mywendysonline.com/wpc/aMgr.do?pg=createPrefs&src=wdotc 

When I was a kid, William's Hamburgers in Fargo, ND sold the world's best burgers for $.18 each. Even then (early '60s for those who can't time stamp burger prices) a genuine entrepreneur in fast food couldn't escape the overreach of growing big government. When the price of my favorite burger went to $.19, it felt like my world caved in. What if they raised the price of the public pool to $.15? How could I keep up with this madness? When I stood on the sidewalk in front of William's and saw the "Closed" sign hanging, I like you, had thought the madness of government intervention had driven William's back to peanut butter and jelly sandwiches out of the trunk of his car. Even at the ripe old age of 4, I had a bad taste in my mouth for peanut butter and now, big government, too. The "authorities" had shut down my world's best hamburger joint. I received official news that evening. "It was closed for good" from my father as he read the newspaper article to my mother, "William's Hamburgers closed for selling horse meat as hamburger for the second time". True story.

Had a good laugh at your dire straights though, you really sound deflated about the inflated burgers. The coupon is good for $1.

 

the rookie cynic's picture

Food stamps, Medicare, Medicaid, and Social Security are "revolution" insurance for the PTB.  The MIC is the global police force for the multination corporations. Congress and POTUS must pay fealty to the banks and corporations to remain in power. DHS has built a huge infrastucture to keep the unwashed masses in line. MSM pumps out the propaganda. Education system is anything but. No wonder anyone who gets close to the truth is branded as a heretic, a commie, a nut-job, or a terrorist. As Mr. Celente has rightly quipped, "We've all become Snooki-stupid." http://therookiecynic.wordpress.com/2010/10/22/the-fraud-club-goldman-sa...

 

Bob's picture

I think everybody's got a clue on this one.  Note the polls.  Why else is Jamie protesting banksters' ill repute and pleading for "fairness"?

the PTB's picture

And we have a winner!!!!!!!

Impetuous's picture

"And what does reward virtue? You think the communist commissar rewards virtue? You think a Hitler rewards virtue? You think, excuse me, if you'll pardon me, American presidents reward virtue? Do they choose their appointees on the basis of the virtue of the people appointed or on the basis of their political clout?"

Love, Milt