Wall Street Criminals Threaten that Economy
Will Blow Up If They’re Prosecuted
The Department of Justice is “considering”
initiating criminal charges against 2 banks.
The
U.S. attorney for the Southern District of New York
recently mocked the
silly claims of gloom and doom:
“Companies,
especially financial institutions, will do almost anything to avoid a
tough enforcement action and therefore have a natural and powerful
incentive to make prosecutors believe that death or dire consequences
await,”
he said. “I have heard assertions made with great force and passion
that if we take any criminal action, the
skies will darken; the oceans will rise; nuclear winter will be upon
us; and the world as we know it will end.”
In
response to the sky-is-falling spouting banking apologists, professor
of law and economics – and chief S&L prosecutor – William
Black explains:
First, no
banker is “too big to jail.” They are easily replaceable and
removing a fraudulent bank CEO from power is the single most
productive act that regulators and prosecutors can accomplish. [The
Department of Justice's chief of criminal prosecutions] Breuer and
Attorney General Eric Holder were involved in a con when they claimed
that their failure to prosecute the senior bank officers leading the
frauds was in any way related to “too big to fail.”
Hilariously, they
even applied the “rationale” for non-prosecution to former bank
officers – as if a bank would fail “because” its former
officers were prosecuted. It is a testament to the weakness of the
reportage that this claim was not treated with ridicule.
Second,
valid fraud prosecutions do not “cause” a business to fail. The
fraud causes them to fail. They should fail when their “profits”
arise from fraud. In particular, they should fail in the case of
accounting control fraud because their “profits” are the
fictional product of accounting fraud. The
markets and the economy are greatly improved when fraudulent
enterprises are destroyed.
***
Third, very little is actually “destroyed,”
when we place a fraudulent bank in receivership, fire the crooked
CEO, and sell the bank to an acquirer of integrity and competence.
The new bank will, net, be greatly improved because it has been freed
from control by the fraudulent leadership that was “looting” the
bank (George Akerlof and Paul Romer, 1993, “Looting: The Economic
Underworld of Bankruptcy for Profit”).
Fourth, there
is rarely a need to prosecute a bank. In virtually every case in
which the bank’s frauds cause serious harm senior officers of the
bank will have led the fraud and profited from it. Everyone in law
enforcement realizes that any effective deterrence will come from
prosecuting those officers and not only removing their fraud proceeds
but also imposing fines that will leave the officers bankrupt.
Fifth, the bank’s controlling officers are
in an immense conflict of interest when their frauds are detected.
They control the bank and its resources. Their first priority is to
prevent their own prosecution. Their second priority is to prevent
any substantial “claw back” of their compensation. Their third
and fourth priorities are to do the same for less senior officers.
This isn’t altruism (though it certainly has an aspect of
class-based affinity). Fraudulent CEOs realize that it is risky to
allow the prosecutors to gain any leverage over more junior officers
who may “flip” and testify against the CEO. The fraudulent
officers controlling the bank, therefore, will gladly trade seemingly
huge fines in exchange for obtaining their top four priorities.
[Finally,
the government's policy
of not prosecuting Wall
Street criminals] produceswhat
Akerlof and Romer warned was
the “sure thing” of CEO “looting” through accounting control
fraud plus the assurance that the CEO will not be prosecuted, forced
to surrender his fraud proceeds, or forced to pay fines that bankrupt
him.Unsurprisingly,
the result has been unprecedented accounting control fraud by elite
banksters.***
None of
this explains why they don’t prosecute bankers (much
less ex
bankers)
Indeed,
the whole if-y0u-prosecute-the-economy-dies scam is like the 2008
bailouts. As we wrote at
the time:
Congressmen
Brad Sherman and Paul Kanjorski and Senator James Inhofe all say that
the government warned of martial law if Tarp wasn’t passed.
***
As Karl
Denninger wrote yesterday:
[S]ounds
like “Bail me out or I will crash
everything.”
Isn’t that analagous to walking into a
bank, opening one’s coat to reveal an explosives-laced belt, and
saying “gimme all the money or everyone dies!”
In the 1974 comedy Blazing Saddles, Cleavon
Little plays the new sheriff in an old Western town. The sheriff is
African-American, and when he rides into town for the first time, the
[racist] townspeople pull out their guns and are about to shoot him.
But he
quickly puts a gun to his own head, pretends he’s scared of his own
gun, and says “BACK OFF OR THE AFRICAN-AMERICAN GUY GETS IT!!!”
The townspeople are dumb and fall for it, suddenly terrified that
he’ll kill himself. Here’s the scene.
That’s what Wall Street is doing with the
bailout.
The fat cats on Wall Street are saying “give
us a lot of money, and buy all of our bad debt for a lot more than
its worth, or Wall Street will get it and we’ll go into a
depression!”
Are Americans stupid enough to fall for it?
In a
recent interview,
William K. Black uses the exact same Blazing Saddles sheriff-bank
analogy.
***
Any way
you look at it, the too big to fails are not
needed and
they are dragging our economy into a black hole. Like the sheriff in
Blazing Saddles … they are playing us for fools.
[Yves Smith] shared another analogy with me:
a man with 15lbs. of Semtex strapped to his waist. She says “any
surprise people in the vicinity are very attentive to his desires?”
