Ever since the financial crash of 2008 there has been a running controversy about the criminal responsibility of the executives of the major banks who had carefully constructed the house of cards that suddenly collapsed creating a chain reaction that created a global recession. When one looked at their elaborate schemes to create and peddle exotic securities that rested on junk debt, it was pretty difficult to swallow the line that nobody could have known that this would happen.
The Fed Just Acknowledged Its Too Big To Jail Policy
The federal government until recently shielded big banks from criminal prosecution out of concern that convictions may damage the financial system, a top Federal Reserve official said Friday, explicitly acknowledging a policy long denied by the Obama administration.
The admission came during a tense exchange between William Dudley, president of the Federal Reserve Bank of New York, and Sen. Sherrod Brown (D-Ohio) at a Senate Banking Committee hearing meant to explore the cozy relations between federal regulators and the banks they supervise.
Until May, large financial institutions investigated for wrongdoing had dodged criminal prosecution under the Obama administration, despite evidence from federal regulators and prosecutors showing that big banks had, for instance, laundered money for suspected terrorists and drug cartels; manipulated interest rate benchmarks; rigged various commodities markets; mislead investors in mortgage-linked securities; duped homeowners into taking out expensive mortgages; manipulated municipal debt markets; and broke state and federal rules when attempting to seize homes after borrowers fell behind on their payments, a scandal that became known as "robosigning."
Both Republican and Democratic lawmakers have long suspected that federal prosecutors didn’t pursue guilty pleas because they were afraid the consequences -- a potential unraveling of a giant bank -- would endanger the global economy. Attorney General Eric Holder suggested that was the case in March 2013, but quickly walked back his comments after a public outcry.
It wasn’t until May that years of persistent criticism eventually gave way to a guilty plea by Credit Suisse, the giant Swiss bank, to allegations it helped thousands of Americans hide their wealth to evade U.S. taxes.
But until Friday, no senior federal official had acknowledged this was explicit U.S. policy.
This really does not come as a surprise. The neoliberal economic and political establishment have sung from the same hymnbook that anything that threatened the security of the people who had created the mess would just create a bigger mess. I suspect that the reason that government officials are now willing to finally tell a little bit of the truth is that they think that the whole storm has now blown over and the public will pay little attention to it. Sadly, I suspect that they are right in that assumption.