Sunday, July 18, 2010

More on the US Oligarchy

Banks Break Law, Pay Small Fines, Go Back to Breaking Law

By: David Dayen Saturday July 17, 2010 7:11 am

I’m a bit surprised that Ted Kaufman, whose eloquent speech on FinReg said exactly what needed to be said about that legislation, was so pleased with the SEC settlement with Goldman Sachs for $550 million dollars. He says that the case proves that the SEC is back on the beat, that Goldman only made $15 million on the deal so the return was not worth the risk for them and that this could signal the beginning and not the end of civil and criminal prosecutions for financial fraud, a new era of accountability and justice.

"As I said on the Senate floor on March 15, it is high time that we return the rule of law to Wall Street, which has been seriously eroded by the deregulatory mindset that captured our regulatory agencies over the past 30 years. We became enamored of the view that self-regulation was adequate, that rational self-interest would motivate counterparties to undertake stronger and better forms of due diligence than any regulator could perform, and that market fundamentalism would lead to the best outcomes for the most people.

Transparency and vigorous oversight by outside accountants were supposed to keep our financial system credible and sound. Instead, an era with no effective regulation or law enforcement led to the biggest financial crisis since 1929 and an economic disaster for the American people. And we know that fraud and lawlessness were at the heart of it.

Congress must continue to concentrate law enforcement and regulatory resources on restoring the rule of law to Wall Street. I am proud that the S.E.C. has begun this task. We must treat financial crimes with the same gravity as other crimes, because the price of inaction and a failure to deter future misconduct is simply a price America can never again afford to pay."
(Senator Ted Kaufman on US Senate floor)

Wall Street doesn’t really see it that way, as evidenced by the persistent rise in Goldman’s stock price since the settlement. And the continued use of exotic financial instruments and high-frequency trading and all of the other casino games that have virtually nothing to do with the purpose of finance.

Consider just one mind-blowing example: Wachovia’s financing of Mexican drug money, an extremely lucrative enterprise that netted them billions over the years. The story, worth reading in full, details how drug money gets laundered through US banks, allowing the multi-billion dollar drug cartels to operate freely. Nobody knows how much Wachovia, since bought by Wells Fargo, made on the handling of $378.4 billion dollars in Mexican currency swaps, but the fine the parent company wound up paying under the Bank Secrecy Act was a mere $160 million. And there’s more:

"The 1970 Bank Secrecy Act requires banks to report all cash transactions above $10,000 to regulators and to tell the government about other suspected money-laundering activity. Big banks employ hundreds of investigators and spend millions of dollars on software programs to scour accounts.

No big U.S. bank — Wells Fargo included — has ever been indicted for violating the Bank Secrecy Act or any other federal law. Instead, the Justice Department settles criminal charges by using deferred-prosecution agreements, in which a bank pays a fine and promises not to break the law again."

Matt Taibbi made this point recently (I forget which radio show it was). If petty thieves steal $10,000 and get caught, they go to jail. If banks steal or fraudulently acquire billions upon billions of dollars, they pay a fine and promise to never do it again, and that’s it. And this was the exact nature of the settlement in the Goldman case.

Rule of law means that people responsible for crimes lose their liberty. That’s what it means for most people, anyway. Not so on Wall Street. Kaufman name-checks Galbraith, but Galbraith would like to see people who break the law go to prison. That would be an effective deterrent, not a slap on the wrist.

UPDATE: It should also be noted that the SEC is “back on the beat” only by the skin of its teeth. The two Republican commissioners on the SEC didn’t want to bring the Goldman case at all, and then split on the settlement as well, trying to get the fine lowered.