Subject: Newsweek: Maybe the banks are too big to jail. Or maybe Washington’s revolving door is at work.
From: "Alexander Snyder-Mackler" <[email-masked]>
To: "jim smith" <[email-masked]>, "ted kaufman" <[email-masked]>, "Hunter Biden" <[email-masked]>, "Eric Schwerin" <[email-masked]>, "Molly Magarik" <[email-masked]>
Date: Mon, 7 May 2012 15:43:35 -0400

Why Can't Obama Bring Wall Street to Justice?  Maybe the banks are too big
to jail. Or maybe Washington’s revolving door is at work.  by Peter J.
Boyer <http://www.thedailybeast.com/contributors/peter-j-boyer.html> , Peter
Schweizer <http://www.thedailybeast.com/contributors/peter-schweizer.html>  |
May 6, 2012 1:38 PM EDT

   - *Obama’s 2009 White House summit with finance titans, in which the
   president warned that only he was standing "between you and the pitchforks"

   *
   - *Why, despite widespread outrage, financial-fraud prosecutions by the
   Department of Justice are at 20-year lows*

   - *Attorney General Eric Holder’s lucrative ties to a top-tier law firm
   whose marquee clients include some of finance’s worst offenders*

   - *How Obama’s trumpeted “task force” for investigating risky mortgage
   lenders—announced in this year’s State of the Union speech—is badly
   understaffed and has yet to produce any discernible progress*

 With the Occupy protesters resuming battle
stations<http://www.thedailybeast.com/articles/2012/05/02/did-may-day-save-occupy-wall-street.html>,
and Mitt Romney in place as the presumptive Republican
nominee<http://www.thedailybeast.com/newsweek/2012/05/06/romney-s-new-foreign-policy-for-afghanistan.html>,
President Obama has begun to fashion his campaign as a crusade for the 99
percent--a fight against, as one Obama ad puts it, "a guy who had a Swiss
bank account." Casting Romney as a plutocrat will be easy enough. But the
president's claim as avenging populist may prove trickier, given his own
deeply complicated, even conflicted, relationship with Big Finance.

Obama came into office vowing to end business as usual, and, in the gray
post-crash dawn of 2009, nowhere did a reckoning with justice seem more due
than in the financial sector. The public was shaken, and angry, and Wall
Street seemed oblivious to its own culpability, defending extravagant pay
bonuses even while accepting a taxpayer bailout. Obama channeled this
anger, and employed its rhetoric, blaming the worldwide economic collapse
on "the reckless speculation of bankers." Two months into his presidency,
Obama summoned the titans of finance to the White House, where he told
them, "My administration is the only thing between you and the pitchforks."

The bankers may have found the president's tone unsettling. Candidate Obama
had been their guy, accepting vast amounts of Wall Street campaign money
for his victories over Hillary
Clinton<http://www.thedailybeast.com/articles/2012/04/14/paul-begala-on-hillary-clinton-s-coming-run-for-the-white-house-in-2016.html>and
John McCain (Goldman Sachs executives ponied up $1 million, more than
any other private source of funding in 2008). Obama far outraised his
Republican rival, John McCain, on Wall Street--around $16 million to $9
million. As it turned out, Obama apparently actually meant what he said at
that White House meeting--his administration effectively would stand
between Big Finance and anything like a severe accounting. To the dismay of
many of Obama's supporters, nearly four years after the disaster, there has
not been a single criminal charge filed by the federal government against
any top executive of the elite financial institutions.

"It's perplexing at best," says Phil Angelides, the Democratic former
California treasurer who chaired the bipartisan Financial Crisis Inquiry
Commission. "It's deeply troubling at worst."
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Imbroglio<http://www.thedailybeast.com/articles/2012/05/07/cherokee-heritage-debate-snares-mass-senate-hopeful-elizabeth-warren.html>

Strikingly, federal prosecutions overall have risen sharply under Obama,
increasing dramatically in such areas as civil rights and health-care
fraud. But according to the Transactional Records Access Clearinghouse, a
data-gathering organization at Syracuse University, financial-fraud
prosecutions by the Department of Justice are at 20-year lows. They're down
39 percent since 2003, when fraud at Enron and WorldCom led to a series of
prosecutions, and are just one third of what they were during the Clinton
administration. (The Justice Department says the numbers would be higher if
new categories of crime were counted.)
 Photos: Who They Are—and What They Got Away
With<http://www.thedailybeast.com/newsweek/galleries/2008/09/17/photos-ceos-golden-parachutes-from-failed-firms.html>

Getty Images (3); Paul J. Richards / AFP-Getty Images

"There hasn't been any serious investigation of any of the large financial
entities by the Justice Department, which includes the FBI," says William
Black, an associate professor of economics and law at the University of
Missouri, Kansas City, who, as a government regulator in the 1980s, helped
clean up the S&L mess. Black, who is a Democrat, notes that the feds dealt
with the S&L crisis with harsh justice, bringing more than a thousand
prosecutions, and securing a 90 percent conviction rate. The difference
between the government's response to the two crises, Black says, is a
matter of will, and priorities. "You need heads on the pike," he says. "The
first President Bush's orders were to get the most prominent, nastiest
frauds, and put their heads on pikes as a demonstration that there's a new
sheriff in town."

Obama delivered heated rhetoric, but his actions signaled different
priorities. Had Obama wanted to strike real fear in the hearts of bankers,
he might have appointed former special prosecutor Patrick Fitzgerald or
some other fire-breather as his attorney general. Instead, he chose Eric
Holder, a former Clinton Justice official who, after a career in
government, joined the Washington office of Covington & Burling, a top-tier
law firm with an elite white-collar defense unit. The move to Covington,
and back to Justice, is an example of Washington's revolving-door ritual,
which, for Holder, has been lucrative--he pulled in $2.1 million as a
Covington partner in 2008, and $2.5 million (including deferred
compensation) when he left the firm in 2009.
 Related

   - Peter Schweizer: Congress's Corruption
Racket<http://www.thedailybeast.com/newsweek/2011/11/13/peter-schweizer-s-new-book-blasts-congressional-corruption.html>

Putting a Covington partner--he spent nearly a decade at the firm--in
charge of Justice may have sent a signal to the financial community, whose
marquee names are Covington clients. Goldman Sachs, JPMorgan Chase,
Citigroup, Bank of America, Wells Fargo, and Deutsche Bank are among the
institutions that pay for Covington's legal advice, some of it relating to
matters before the Department of Justice. But Holder's was not the only
face at Justice familiar to Covington clients. Lanny Breuer, who had
co-chaired the white-collar defense unit at Covington with Holder, was
chosen to head the criminal division at Obama's Justice. Two other
Covington lawyers followed Holder into top positions, and Holder's
principal deputy, James Cole, was recruited from Bryan Cave LLP, another
white-shoe firm with A-list finance clients.

Justice's defenders point out that prosecuting financial crime is a
complicated matter requiring the highly specialized expertise found in the
white-collar defense bar. But some suggest there is also the potential for
conflicting interest when the department's top officials come from
lucrative law practices representing the very financial institutions that
Justice is supposed to be investigating. "And that's where they're going
back to," says Black. "Everybody knows there is a problem with that." (Two
members of Holder's team have already returned to Covington.) A
spokesperson for Covington was not available for comment. (*Newsweek* uses
the firm as outside counsel.)

Top bankers after meeting with Obama, who told them “my administration is
the only thing standing between you and the pitchforks.” (Mark Wilson /
Getty Images)

Justice's inaction regarding the big Wall Street firms is not for a lack of
suspicious activity. Three different government entities exhaustively
examined the practices that contributed to the financial collapse, and each
has referred its findings to the department for possible criminal
investigation. One such matter involved a 2007 transaction by Goldman
Sachs, in which Goldman created an investment, based on mortgage-backed
securities, that seemed designed to fail. Goldman allowed a client who was
betting against the mortgage market to help shape the investment
instrument, which was called Abacus 2007-AC1; then both Goldman and the
client bet against the investment without informing other clients (whose
investments were wagers on its success) how the securities included in the
portfolio were selected. These uninformed clients lost more than $1 billion
on the investment. In 2010, the Securities and Exchange Commission charged
Goldman with securities fraud "for making materially misleading statements
and omissions" in marketing the investment. The SEC, which conducts only
civil litigation, referred the case to Justice for criminal investigation.

A year later, in April 2011, the Senate Permanent Subcommittee on
Investigations, chaired by Democrat Carl Levin, after a two-year inquiry,
issued a fat report detailing several transactions, including Goldman's
Abacus deal, that Levin and his staff believed should be investigated by
Justice as possible crimes. The subcommittee made a formal referral to the
department (as did the federal Financial Crisis Inquiry Commission, chaired
by Phil Angelides), and Levin publicly stated his view that criminal
inquiry was warranted. Goldman executives, including the firm's chief
executive officer, Lloyd Blankfein, started hiring defense lawyers.

Meanwhile, Obama's political operation continued to ask Wall Street for
campaign money. A curious pattern developed. A *Newsweek* examination of
campaign finance records shows that, in the weeks before and after last
year's scathing Senate report, several Goldman executives and their
families made large donations to Obama's Victory Fund and related entities,
some of them maxing out at the highest individual donation allowed,
$35,800, even though 2011 was an electoral off-year. Some of these
executives were giving to Obama for the first time.

Justice insists that political operations such as fundraising are kept
strictly distanced from the department, in order to avoid even the
appearance of political influence. But the attorney general and his team
are not unfamiliar with the process; Holder was himself an Obama bundler--a
fundraiser who collected large sums from various donors--in 2008, as were
several other lawyers who joined him at Justice.

It would be a leap to infer these Goldman contributions were made--or
received--as quid pro quo for dropping a criminal investigation. Still, the
situation constitutes what one Justice veteran acknowledged is a "bad set
of facts."

Maintaining public faith in the justice system is one of the reasons why
people such as Angelides continue to call for a rigorous criminal
investigation into Wall Street. "I think it's fundamental that people in
this country need to feel that the justice system is for everyone--that
there's not one system for those people of enormous wealth and power, and
one for everyone else," he says.

In July 2010, three months after the SEC charged Goldman in the Abacus
case, the agency reached a settlement with the firm. Goldman agreed to pay
$550 million, but admitted no wrongdoing. The agency touted the amount of
the fine as the biggest ever--but to Goldman it was a relative pittance.
The fine amounted to about 4 percent of the sum that Goldman paid its
executives in bonuses ($12.1 billion) in 2007, the year of the Abacus
transaction.

Earlier this year, it was reported that Goldman executives were feeling
optimistic that the Justice inquiry would not result in criminal charges
against the firm, or its executives. Goldman declined to comment on the
case, as did the Justice Department. But spokeswoman Alisa Finelli said,
"When we find credible evidence of intentional criminal conduct--by Wall
Street executives or others--we will not hesitate to charge it. However, we
can and will only bring charges when the facts and the law convince us that
we can prove a crime beyond a reasonable doubt." Holder, speaking in
February at Columbia University, said that while "we found that much of the
conduct that led to the financial crisis was unethical and irresponsible
... we have also discovered that some of this behavior--while morally
reprehensible--may not necessarily have been criminal."

Midway through his State of the Union speech this year, President Obama
announced plans "to create a special unit of federal prosecutors and
leading state attorneys general to expand our investigations into the
abusive lending and packaging of risky mortgages that led to the housing
crisis," and he vowed again to "hold accountable those who broke the law."

That portion of the speech had a familiar ring. In November 2009, Attorney
General Holder, with Treasury Secretary Timothy Geithner at his side,
announced the creation of another special unit--the Financial Fraud
Enforcement Task Force--that was similarly charged with investigating
securities and mortgage fraud that contributed to the financial meltdown.
Since its creation, that task force, which critics say was drastically
under-resourced, has produced not a single conviction (or even indictment)
of a major Wall Street player related to the financial disaster.

Some who heard the president's State of the Union speech thought they
discerned a hidden purpose behind his new "special unit"--the Residential
Mortgage-Backed Securities Working Group, as it would be called. The day
before the president's speech, state attorneys general from around the
country met in Chicago with Justice officials to discuss a proposed
national settlement with five major banks, including JPMorgan Chase and
Bank of America, over questionable foreclosure practices. The
administration was pushing the settlement, as were the banks. But a handful
of attorneys general were resisting the settlement, believing it gave too
much away to the banks--including protection from mortgage-related
investigations that were still unfolding. These holdout state officials
were supported by a coalition of activists, who argued that the banks would
never make meaningful concessions--such as the reduction of principal on
underwater mortgages--unless they faced the threat of investigation.

One of those activists, Mike Gecan, of the Industrial Areas Foundation,
says he was disheartened when he heard Obama's speech, and the news that
New York Attorney General Eric Schneiderman would be co-chairing the new
"working group." Schneiderman, who is in the tough-guy mold of his
predecessors, Eliot Spitzer and Andrew Cuomo, had been a leader of the
state holdouts; now, Gecan feared, Schneiderman had been co-opted by the
Chicago Way. "I'm from Chicago, I've seen this game played my whole life,"
he says.

Gecan's view seemed vindicated two weeks later, when Obama announced that
the settlement had been reached.

Nearly three months later, it is not clear what, if any, progress the
"working group" has made. The unit was only promised 55 investigators,
attorneys, and support staff--a tiny fraction of the resources afforded to
similar groups investigating the S&L and Enron/WorldCom scandals--and it is
not clear that even that commitment has materialized. "I think what
happened is what usually happens: the administration rope-a-doped," says
Gecan. "There's no office, there's no director, there's no staff, there's
no space, there's no phone."

Last month, Gecan wrote an op-ed article for the New York *Daily
News,*calling upon Schneiderman to quit the group in protest
(Schneiderman's
office did not respond to requests for an interview). In the meantime,
Gecan said, he will work to bring pressure on Obama. "There's a little
presidential campaign that's going to start, and we're going to make this
issue central to this campaign," he said.

It may be, as the attorney general points out, that Wall Street was greedy,
stupid, and immoral, without actually breaking any laws. But the powers of
the Justice Department are immense, and a more aggressive prosecutor surely
could have found cases to make. Black, the UMKC professor, says the conduct
could well have violated federal fraud statutes--"securities fraud for
false disclosures, wire and mail fraud for making false representations
about the quality of the loans and derivatives they were selling, bank
fraud for false representations to the regulators."

The absence of prosecutions, and the fact that the cops on the beat hail
from the place that represents the banks, does not sit right with many who
hoped Obama would fulfill his promise to hold Big Finance accountable. The
left's frustration fuels the Occupy movement, and chills the Democratic
base. And it gives Romney, the career capitalist, an opening he is avidly
exploiting.

Through last fall, Obama had collected more donations from Wall Street than
any of the Republican candidates; employees of Bain Capital donated more
than twice as much to Obama as they did to Romney, who founded the firm. By
this spring, however, resolution had come to the GOP contest, and Wall
Street could see a friendly alternative to Obama. While most of Romney's
contributions so far come mainly from the financial sector, Obama's
donations from Wall Street have dropped sharply.

But this turn may yet help Obama, playing into the Romney-as-plutocrat
theme. Just the other week, the Republican candidate quietly slipped into a
fundraiser at the home of hedge-fund king John Paulson, who made a killing
shorting mortgage futures (including about $1 billion on the Abacus deal).
The Obama campaign pounced. Obama may yet fully liberate his inner
populist--that Obama who in 2010 in an off-Prompter moment uttered a
sentence that made blood run cold on Wall Street: "I do think at a certain
point you've made enough money."

-- 

Alexander Snyder-Mackler
(302) 598-867