"There Is Still Such a Thing as 'Too Big to Jail' / "Do Big Banks Have a `Get Out of Jail Free' Card?

"...the reason we know there is such a thing as "too big to jail" is that [US Attorney General Eric] Holder felt compelled to say there isn't.

It should be a given in the U.S. that no person or corporation is above the law. But the evidence to the contrary has been overwhelming. The Justice Department has entered into at least 20 non-prosecution and deferred-prosecution agreements with large financial institutions since 2009. Poor people who commit crimes aren't shown such leniency. Nor has the Justice Department hesitated to bring criminal charges against big companies in other industries.

Consider what Holder told the Senate Judiciary Committee in March 2013, when asked to explain the lack of criminal charges against large banks over offenses that include fraud, terrorist financing and money laundering.

"I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy," Holder said. "And I think that is a function of the fact that some of these institutions have become too large."

"It has an inhibiting impact on our ability to bring resolutions that I think would be more appropriate," he said.

...As my Bloomberg View colleague Paula Dwyer wrote at the time, he committed a Kinsley gaffe: He accidentally spoke the truth.

...Holder, in his video, suggested that a major difference between the department's approach now and a few years ago is ... "Rather than wall off banks from prosecution, the potential for such severe consequences simply means that federal prosecutors conducting these investigations must go the extra mile to coordinate closely with the regulators that oversee these institutions' day-to-day operations," Holder said. "So long as this coordination occurs, it is fully possible to criminally sanction companies that have broken the law, no matter their size."

That part of what he said is true. I've said the same thing myself. It also is an acknowledgement that large, felonious banks will always receive special treatment. The Justice Department is willing to let the chips fall where they may for little people, but not for big banks. For big banks, prosecutors must go the extra mile. We're long past the days when prosecutors used to say, "Let justice be done, though the heavens fall."

Do Big Banks Have a `Get Out of Jail Free' Card?

U.S. Attorney General Eric Holder's statement yesterday -- that some banks are too big to prosecute -- may have been a Kinsley gaffe: the kind of misstatement that accidentally reveals the truth.    

Justice Department officials for months have been denying that big banks are above the law. Then Holder told the Senate Judiciary Committee that the size of some large banks has made it difficult to bring criminal charges. He said "some of these institutions have become too large" and that their size "has an inhibiting impact on our ability to bring resolutions that I think would be more appropriate." He added that bank size was something Congress would "need to consider."

It was quickly interpreted that Holder was giving too-big-to-fail banks a get-out-of-jail-free card. But I think Holder was making only a half-Kinsley. He was stating the obvious -- that criminal charges can threaten a bank's existence and endanger the U.S. or the global economy.

...Holder was responding to questions from Senator Charles Grassley, the Iowa Republican who, along with a growing number of senators in both parties, is especially critical of the lack of prosecutions against banks for their roles in the financial crisis.

...Sending top-ranked bankers to jail would be a more powerful deterrent than indicting a faceless corporation.

Banks Take the Economy Hostage
26 May 2, 2014 8:28 AM EDT
By Barry Ritholtz

...Former Federal Reserve lawyer Gil Schwartz warned “The mere threat of requiring a hearing could cause customers to lose confidence in the institution and could cause a run on the bank.”
U.S. Attorney Preet Bharara recounted the picture bankers painted if prosecutions occurred: “Oceans will rise; nuclear winter will be upon us; and the world as we know it will end.”

...It used to be thought that fear of indictment, personal disgrace and threat of jail would keep bankers from engaging in illegal activities. But the extraordinary intervention of the U.S. government and Federal Reserve changed the dynamics of prosecution.

...Prosecute our clients, said the bankers’ lawyers, and you risk destabilizing a fragile financial system. Put a systemically important financial institution in your cross hairs, and you put the entire global economy at risk.

The Bush and Obama administrations bought this line of reasoning.

This argument should never have carried the day. The job of a prosecutor is to prosecute, not to make economic forecasts. Convincing various governmental departments not to do their jobs was a masterful act of salesmanship, one that undercut fundamental principles of rule of law.

It isn't the role of the Justice Department, the Securities and Exchange Commission, or the U.S. attorney’s office to make assessments based on the forecasts of economists doing the bidding of their paymasters.

...For those charged with enforcing the law, it was an epic abdication of responsibility...

Ignoring fraud, perjury and other felonies was a colossal error of judgment...

As we noted last month, “The greatest innovation of the financial sector is not the ATM machine or interest-bearing checking accounts or securitization: It was convincing the powers that be that prosecuting them for their actual crimes would (once again) bring the economy to the edge of the abyss.”

...The statute of limitations is ticking and will soon place many of those responsible beyond reach. Justice denied makes it more likely we will be subjected to a future financial crisis.


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