The Untouchables, PBS’ Frontline investigation into why no Wall Street executives have gone to jail for activities connected to the housing and financial sector in 2008, recently aired. I took the time to watch it and strongly encourage each one of you to do the same –paints a very clear picture, in less than an hour, of exactly why our country suffered such a severe financial collapse in 2008. What it fails to do is answer the question it asks: why have no Wall Street executives been criminally prosecuted for fraud?
Lenny Brewer, chief of the criminal division at DOJ, explains that greed is not necessarily criminal:
“I am personally offended by much of what I’ve seen. I think there was a level of greed, a level of excessive risk taking in this situation that I find abominable and that I find very upsetting. But that is not what makes a criminal case. What makes a criminal case is that I can prove beyond a reasonable doubt every element of the crime.”
Many – including legislators in Washington – are skeptical that DOJ has focused as much upon prosecuting Wall Street as it claims. The program included interviews from numerous whistleblowers – all ready and willing to speak of the fraudulent activities that occurred at various financial institutions. Each supported the same overall picture; that financial institutions were falling over themselves to offer loans, regardless of whether they should. In other words, mortgage and loan fraud. The bank employees themselves were astonished at the loans that were being approved – standards were not just being loosened but rather dropped altogether.
Why would financial institutions want to make bad loan decisions and offer loans to people who clearly would not be able to repay, ever? Historically, making a bad loan is a money losing activity. Here, the loaning banks knew that they could make money anyway. They could bundle the loans and securities and sell them. And that is where the fraud comes in – loan originators knew that they were making loans that would not be repaid. By reselling those loans they were avoiding the risks associated with unreliable borrowers. Thus, the banks profited regardless of a borrower’s ability to repay his loan. This, of course, triggered the massive up-tick in irresponsible lending we just discussed and created a bubble – a bubble that later burst. Anyone who knew of the fraudulent nature of those loans and resold them anyway, helped perpetuate fraud.
While many loan originators have been prosecuted (apparently in the 2-3,000 range) prosecutors have failed to go after a single banker. President Obama signed the Fraud Enforcement and Recovery Act of 2009 to help prosecute those who were to blame by amending the fraud statutes to make prosecution easier and by increasing funding for DOJ, the FBI and the SEC. Unfortunately, it does not appear to have worked. Despite lawmakers calling for people to go to jail, we have yet to see even a single criminal prosecution of Wall Street bankers for the fraud that led to the deepest recession our country has experienced in decades.
How can this be true? Frontline was not able to answer that question. Is it because Wall Street is able to make huge campaign donations? Maybe. Is it because Wall Street is too big / important to be subject to the laws everyone else must live by? Looks like it. But it doesn’t matter why, what matters is that it is wrong. It is a situation that must be changed. To change it requires a different balance of power between government regulators and Wall Street. Hopefully, we will all begin asking the questions Martin Smith asks in The Untouchables.
Do you have information about fraud against the government? Have your rights as a consumer been violated? Call Berk Law at (202) 232 – 7550 to discuss your legal rights today.