Jeff Connaughton, the chief of staff of former Delaware Democratic Senator Ted Kaufman, posted one of the, IMHO, gutsiest political criticism pieces I’ve read all year over at HuffPo on Monday, entitled: “Obama and the Rule of Law.”

Then, yesterday, Matt Taibbi gave us his take on it via his Rolling Stone blog: “Obama and Geithner: Government, Enron-Style.”

Upon reading both Taibbi’s and Connaughton’s articles, I did a diary search here (as I usually do before posting anything in this community, in general), and nothing came up under the terms: “Connaughton,” “Obama and the Rule of Law,” and “Government, Enron-style.” (If I missed a post on this, please let me know in the comments.)

So, in reverse order, let’s begin with Taibbi on Connaughton’s commentary on the President’s speech in Osowatomie, Kansas on December 6th, and his ensuing interview on 60 Minutes, the following Sunday, the 11th. (Like Taibbi, I strongly recommend that you read Connaughton’s HuffPo piece.)

Obama and Geithner: Government, Enron-Style
Matt Taibbi
December 20th, 2011   10:06 AM

…The notion that what Wall Street firms did was merely unethical and not illegal is not just mistaken but preposterous: most everyone who works in the financial services industry understands that fraud right now is not just pervasive but epidemic, with many of the biggest banks committing entire departments to the routine commission of fraud and perjury – every single one of the major banks, for instance, devotes significant manpower to robosigning affidavits for foreclosures and credit card judgments, acts which are openly and inarguably criminal.

Banks and hedge funds routinely withhold derogatory information about the instruments they sell, they routinely trade on insider information or ahead of their own clients’ orders, and corrupt accounting is so rampant now that industry analysts have begun to figure in estimated levels of fraud in their examinations of the public disclosures of major financial companies.

Geithner and Obama are behaving like Lehman executives before the crash of Lehman, not disclosing the full extent of the internal problem in order to keep investors from fleeing and creditors from calling in their chits. It’s worth noting that this kind of behavior – knowingly hiding the derogatory truth from the outside world in order to prevent a run on the bank – is, itself, fraud!

…If Geithner and Obama really wanted to convince the world that America’s markets weren’t broken, they would effectively police fraud, and by extension prove to everybody that at the very least, our regulatory system is not broken.

But by taking a dive on fraud, and orchestrating mass cover-ups like the coming foreclosure settlement fiasco, what they’re doing instead is signaling to the world that not only are our financial markets corrupt, but our government is broken as well…

And, Connaughton…

Obama and the Rule of Law
Jeff Connaughton
Huffington Post
December 19, 2011   1:55PM

Long silent and now contradictory, President Obama needs to deliver a clarifying speech about our financial markets and the rule of law. Speaking in Kansas on December 6, he said, "Too often, we've seen Wall Street firms violating major anti-fraud laws because the penalties are too weak and there's no price for being a repeat offender." Just five days later on 60 Minutes, he said, "Some of the least ethical behavior on Wall Street wasn't illegal." Which is it? Have there been no prosecutions because Wall Street acted legally (albeit unethically)? Or did Wall Street repeatedly violate major anti-fraud laws (and should thus find itself in the dock)?

The President is confusing "legal" with "difficult to prosecute successfully." The Justice Department's repeated decisions not to risk losing at trial against Wall Street executives don't make these person's actions legal. (If a district attorney can't prove the actual thief stole your wallet, that doesn't make stealing legal. It simply means that, regrettably, a malefactor goes unpunished.) As Securities and Exchange Commission Enforcement Director Robert Khuzami said in Senate testimony in 2009, Wall Street perpetrators "are smart people who understand that they are crossing the line" and "are plotting their defense at the same time they're committing their crime."

Moreover, the President is misleading us when he says that Wall Street firms violate anti-fraud law because the penalties are too weak. Repeat financial fraudsters don't pay relatively paltry -- and therefore painless -- penalties because of statutory caps on such penalties. Rather, regulatory officials, appointed by Obama, negotiated these comparatively trifling fines. This week, the F.D.I.C. settled a suit against Washington Mutual officials for just $64 million, an amount that will be covered mostly by insurance policies WaMu took out on behalf of executives, who themselves will pay just $400,000. And recently a federal judge rejected the S.E.C.'s latest settlement with Citigroup, an action even the Wall Street Journal called "a rebuke of the cozy relationship between regulators and the regulated that too often leaves justice as an orphan."

The Obama Justice Department hasn't tried a single Wall Street executive in a criminal court. Against a handful, it decided to let the S.E.C. bring civil charges of fraud, which are easier to prove. So if defendants' wrists are merely being slapped by the S.E.C. instead of cuffed by the Justice Department, Obama has only his appointees to blame…

So, what’s happening with regard to the “crackdown” on all of this blatant fraud which now runs rampant in Washington as you read this?

At best, more public wrist slaps which result in the Wall Street equivalent of petty cash fines for too-big-to-fail bank executives.

An absurdly “captured” and historically corrupt Securities and Exchange Commission that’s “getting tough” with former Fannie Mae and Freddie Mac executives by hitting them with threats of civil judgements for which we, the taxpayers, will end up footing the bill. (Think about it! As Yves Smith just brought it to our attention, coming and going, it is the U.S. taxpayer that ends up paying the tab for BOTH the prosecution of, and the subsequent payment of civil penalties by, all Government Sponsored Enterprise [“GSE”] executives [i.e.: Fannie Mae, Freddie Mac, etc.] found guilty of fraud in civil litigation. Heads the banks win, tails the U.S. taxpayer loses. So much for cutting government funding for the arts. Apparently, taxpayers might not know it, but the U.S. government really is spending hundreds of millions of hidden dollars on public theater!)

It’s gotten to the point where, to even have a slight chance of criminally prosecuting Wall Street CEO’s, diligent regulators in Washington have to bypass our own Department of Justice, while they seek out opportunities at the state level to mete out appropriate justice.

I’m going to end this piece with a “note” that I’ve used while concluding a few of the diaries that I’ve posted in this community over the past year…

(DIARIST’S NOTE: For those that have a problem with this post, I would strongly suggest a read of a piece by Bill Moyers, from earlier in the year: “Bill Moyers: America Can't Deal With Reality -- We Must Be Exposed to the Truth, Even If It Hurts.”)

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