Main Street suffers, Wall Street prospers

Bill Knight column for Thurs., Fri., or Sat., Sept. 19, 20, or 21

It’s five years this month since the collapse of the financial services firm Lehman Brothers, and we’re still waiting on the perp walk of a millionaire to jail. Also this month, the Federal Reserve’s temporary permission for Big Banks to directly buy commodities is scheduled to expire, and Jim Comey started as FBI director.

Although Comey’s cozy with the defense industry and Wall Street, he also opposed warrantless wiretapping when he was Deputy Attorney General during the Bush administration, and he’s an ex-prosecutor.

Prosecute, please!

The Big Banks have gotten too big, said U.S. Sen. Elizabeth Warren (D-Mass.), who’s criticized U.S. Attorney General Eric Holder for failing to fully investigate or prosecute Wall Street and condemned the U.S. Supreme Court as a “subsidiary of Big Business.”

Big Banks should not be “too big to fail or, for that matter, too big to manage, too big to regulate, too big for trial, or too big for jail,” she said.

The problem isn’t rank-and-file FBI employees, as shown in the agency’s Financial Crimes Report to the Public, which documents their efforts to pursue crimes including money laundering, securities/commodities fraud, market manipulation, financial institution fraud and mortgage fraud.

The problem is a lack of leadership by politicians beholden to campaign contributors tied to Wall Street, and the conflict of interest resulting from “watchdogs” coming from (and going back to) Wall Street.

Holder has said the “too big to fail” mindset applies to criminality, too, since it would jeopardize the economy.

So much for deterrence.

Decades ago, racketeers dealt with bootleg liquor and loan-sharking, prostitution and “protection.” Today, “banksters” use pens, not guns, and aren’t on law enforcement’s “Ten Most Wanted” list.

Decades ago, these types were tempered by federal regulations such as the Glass-Steagall Act, which since 1933 limited commercial banks’ involvement with securities. After its repeal in 1999, financial giants including Citigroup, Goldman Sachs, JPMorgan Chase and Morgan Stanley went wild and started buying sizable quantities of commodities ranging aluminum and copper to coffee and cotton. (Goldman manipulated aluminum to the point that U.S. consumers paid $5 billion more for aluminum cans in the last few years, according to the New York Times.)

Now, a few federal investigations have resulted, with ridiculously low penalties. For instance, the Federal Energy Regulatory Commission punished JP Morgan with a $285 million fine, about what the corporation nets in one day.

HSBC, which laundered $881 million for drug cartels, was fined a record $1.9 billion – but that’s a couple of months’ of its profits. SAC Capital’s Steve Cohen had criminal fraud charges dropped (although a civil suit and other charges could happen). Blythe Masters, accused of illegally trading in electricity markets in Michigan and California, is apparently escaping even civil damages. And Goldman trader Fabrice Tourre was found guilty in a civil-fraud lawsuit brought by the Securities and Exchange Commission and faces fines of between $5,000 to $130,000 for each of six convictions for, among other things, misleading investors and aiding a scheme to steal $1 billion from European banks.

Fines? How about full restitution? For a start. It happened before.

“In the Savings and Loans crisis – 1/70th the size of this crisis – our agency made over 10,000 criminal referrals that resulted in the conviction on felony grounds of over 1,000 elites,” said former government regulator and University of Missouri-KC law professor William K. Black Jr.

Maybe it’s our own expectations.

“A society that believes good government to be an impossibility is unlikely to do what is necessary to keep industry honest,” wrote author and journalist Thomas Frank in Harper’s magazine. “Instead, its regulators will come to see the regulated, rather than the public, as their main clients. They will party with their private-sector pals and spin happily through the revolving door. And the rest of us will resign ourselves to scandal after scandal, as a new generation of looters rises up to claim positions at the trough when the old looters retire.”

When it comes to Big Banks, law enforcement is upside down. Real victims of fraud, like homeowners illegally forced into foreclosure, are somehow at fault while actual perpetrators (who profit from their criminality) escape responsibility.

The FBI lists thousands of pending cases, waiting for Comey, if not Holder to stand up to Wall Street.

“Wall Street will fight us, but the American people are on our side,” Warren told the AFL-CIO convention this month. “If we don’t fight we can’t win, but if we fight we will win.”

The FBI’s 33-page financial crimes report is online: http://www.fbi.gov/stats-services/publications/financial-crimes-report-2010-2011

[PICTURED: Cartoon from Roguemedia.org.]