The Corporate Observer Blog : Consumer Protection, Corporate Abuse : Class Action Lawyer & Attorney : Steven Berk Law Firm

Today we feature another guest post from Jeff Goldberg, who blogged last week about soaring unemployment versus the falling crime rate.  Enjoy.

Frustrating as this is in hard times, our system is built for inaction, compromise and half measures.

From left and right our government is assailed for its inability to act decisively to meet our current national challenges.  

Rarely in our history do we see decisive political action for the unalloyed public good.  The single boldest legislative action taken in American history was the vote of the southern legislatures to secede from the union.  Those votes were decisive but were they right and were they good?  If bleeding the country was necessary to end slavery then perhaps the votes can be seen in a positive light, but history does not heap praise on the secessionists.

In the fall of 2008 the federal government acted decisively to prevent the perceived imminent collapse of the US financial sector.  A Republican president, democratic presidential nominee and the congressional leadership from both parties acted to pass TARP, often contrary to their constituents’ express desires and their own political beliefs. 

Recent reports suggest that TARP has worked reasonably well and that the program will end up costing much less than originally budgeted and feared.  "For what it's worth, it's worked," Fed Chairman Ben Bernanke said in a meeting with college students in Rhode Island.  "It's stabilized the system.  The financial system is now much healthier than it was.  It's no longer in crisis, and moreover, the money that went into these financial firms is coming back to the taxpayers with interest.  So it turns out to have been not only a successful program, but for the most part, a pretty good investment for taxpayers."  Yet a number of federal officeholders, particularly on the right, have paid or will pay a political price for voting in favor of TARP.  

Our government is specifically designed to prevent decisive action.  Montesquieu wrote of the need to separate and balance the functions and powers of the branches of government.  In Federalist 10 Madison wrote that government should serve to temper misdirected passions of the people.  Frustrating as this is in hard times, our system is built for inaction, compromise and half measures. 

On a recent Real Time With Bill Maher, Cornel West asked why the crisis mentality that led to TARP doesn’t exist for the problem of unemployment?  This poignant formulation echoes the larger charge -- that the system is broken and unable to act.  TARP provides a partial and partially unsatisfying answer -- leadership can transcend politics but rarely.  In all other times we muddle through.  Tweaks to the system and the protests of an angry electorate will not change the basic nature of the system, which is built on the founders’ keen understanding of human weakness.

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Frustrated by Bank of America’s failure to come clean, Rakoff issued a bitter ruling condemning the bank for its dishonesty and immorality. “It is not fair, first and foremost because it does not comport with the most elementary notions of justice and morality…”

Today we applaud the Honorable Jed Rakoff – our former “Person of the Week” – once again, for standing up against both Wall Street greed and immorality and one of the nation’s most important regulators. Not a bad day’s work.

On Monday, Rakoff stridently refused to approve a $33 million settlement deal between the Securities and Exchange Commission (SEC) and the Bank of America.

Rakoff’s decision protects the rights of Main Street and fulfills the judiciary’s historic role as the conscience of America. As Alexander Hamilton writes in Federalist Paper No. 78,

“The judiciary…has no influence over either the sword or the purse; no direction either of the strength or of the wealth of the society; and can take no active resolution whatever. It may truly be said to have neither FORCE nor WILL, but merely judgment.” Jed Rakoff’s actions demonstrate great judgment in the face of force and will.

The $33 million penalty—which would ultimately be borne by shareholders on Main Street—would have settled an SEC lawsuit filed against Bank of America, following its merger with Merrill Lynch & Co. The lawsuit accused Bank of America of lying to its Main Street shareholders, publicly promising that Merrill executives would not be rewarded year-end bonuses, while privately allotting upwards of $5.8 billion for bonus compensation.

Frustrated by Bank of America’s failure to come clean, Rakoff issued a bitter ruling condemning the bank for its dishonesty and immorality. He argued that the settlement was not only inadequate—$33 million from shareholders for a $5.8 billion lie?—but also unjust and absurd in that it doubly punishes Main Street victims, who would ultimately pay the costs of the $33 million penalty. “It is not fair, first and foremost,” wrote Rakoff, “because it does not comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the Bank’s alleged misconduct now pay the penalty for that misconduct.”

Rakoff’s harsh language surely expresses the frustration shared by many Americans and perhaps suggests that business as usual on Wall Street will no longer be tolerated, at least by Jed Rakoff. And for that, we salute him as Main Street’s Player of the Month.

Stay tuned: Rakoff has scheduled the case for trial on February 1, 2010.

Assisted by Jessica Begen.

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