The banking wars are getting more and more interesting. The legal and political implications are bigger than most people understand, and the players involved need to be very careful with the loaded guns they are gesturing with or they might shoot themselves in the foot (or perhaps an even more vulnerable body part.)
Underlying the entire drama is this fundamental subtext: the American people are fundamentally (and correctly) cynical about how the big bankers always seem to get away with whatever they want to get away with. Bailing out the bankers with no strings attached in order to save an economy that didn’t seem to most people to be very well saved, then watching the banks get record profits and bonuses the very next year while the rest of the economy was in the toilet didn’t engender much good cheer about whether justice had been done. Neither have the tons of books, news articles, and blog posts about the things these bankers were able to get away with in the course of the buildup to the crisis and the things that have happened since.
The new financial fraud task force the President announced in his State of the Union address, co-chaired by avowed Wall Street antagonist Eric Schneiderman from New York, was supposed to help staunch the cynicism about whether the masters of the Wall Street universe would ever be held accountable. Many of us who have been working on banking and housing issues had been calling for a deeper investigation of the banks, and when we got it, we were delighted, especially with Schneiderman playing such a leading role. But the success of this task force still hangs in the balance. A lot of questions have been raised by various groups and individuals working on this, including me, about how fast the task force was moving and whether the White House was focused on making sure things were effectively moving. Meanwhile, Republicans like Rep. Patrick McHenry, eager to serve their corporate masters on Wall Street, have started harassing and trying to slow down the task force in its work by forcing them to respond to threatening letters that are pure fishing expeditions.
The good news is that after what felt to a lot of activists like a very slow start, things seem like they are starting to come together in the task force. From everything I hear, the DOJ staffers that were to be assigned to the task force are now working, an executive director is likely to be on the verge of being hired, and other agencies including CFPB and HUD are actively and productively engaged and contributing resources. My sense is that there was some initial foot dragging by DOJ, but things are starting to move. And I think the flurry of questions and email petitions over the last couple of weeks did have the desired effect in getting the White House more involved in encouraging the bureaucracy to keep moving.
It will be very hard to know, of course, what is really going in a legal investigation that has to be confidential in releasing information they are finding in the investigation. It will be a long spring and summer for those of us who care about accountability for the banks, because the wheels of justice take some time to move, and I would guess that the earliest indictments could start flying is several months from now. In the meantime, activists will need to keep the heat on.
Turning from the legal back to the problem of the public’s cynicism about whether the big bankers will ever be held to account, the Obama administration does itself no favors when Treasury Secretary Geithner makes it sound like the administration has already decided not to prosecute anything. From Reuters:
“Most financial crises are caused by a mix of stupidity and greed and recklessness and risk-taking and hope," said Geithner, who helped tackle the crisis for the Bush administration when he was the head of the New York Federal Reserve and has been urging Europe to act more aggressively to contain its debt problems. "You can't legislate away stupidity and risk-taking and greed and recklessness. What you can do is make sure when it happens it does not cause too much damage and to do that you have to make sure you have good rules against fraud and abuse, better protections and you force banks to hold more capital against their risk," he said.
This statement unfortunately echoed Attorney General Eric Holder’s statement after the task force was announced that in his assessment the problems were not mostly related to law-breaking but to greed and stupidity. Whoever is writing the talking points for these guys needs to be fired. The politics and optics of the President announcing a task force to look into Wall Street fraud, and then having his AG and Treasury Secretary announce that there probably weren’t many laws broken in advance of the investigation, is atrocious. If the President loses populist swing voters mad at Wall Street, and therefore the election, I’d recommending looking for a cause first at Geithner for statements like this and policies that have treated Wall Street with kid gloves.
Speaking of those swing voters: one of the biggest unresolved issues in the 2012 election will be whether President Obama can convince the swing voters who are both angry at Wall Street and skeptical of government -- in great part because they think it is bought off by wealthy special interests like Wall Street bankers -- that he will actually hold Wall Street accountable. Thirty-seven percent of voters in the 2010 exit polls, when asked who was primarily to blame for the economic problems the country was facing, said Wall Street -- far more than any other person or institution named. That populist group of voters who blamed Wall Street first ended up breaking 56-42 for Republicans candidates (after voting for Obama 2-1 in 2008) because they perceived that Obama was, in the haunting phrase of EJ Dionne, a “Wall Street liberal” -- someone who was both too close to Wall Street and pro-big government. These mostly working class voters, many of them hard pressed economically, many of them with underwater mortgages, are under no illusions that Romney is a Wall Street guy through and through, which is why he had so much trouble with working class voters in the Republican primaries. But they don’t trust government or Obama either, and might well vote against the incumbent if they don’t see him taking on Wall Street. If these voters think both Presidential candidates will coddle Wall Street, their tendency will be to vote for the one they think will keep taxes down and lower the deficit.
The fraud task force is burdened by three and a half years of virtually no visible action against the Wall Street fraud that helped bring down this economy, and by big expectations coming from the activists on this issue. Cynicism is high, and patience is low. I sympathize with those inside the task force to whom this feels unfair, but the bottom line is that they have to deliver something tangible, and relatively soon, to show that the big boys on Wall Street have to obey the same laws that everyone else does- that when they cheat their clients and cheat on their taxes and fraudulently manipulate markets, that they will be investigated, prosecuted, and spend some time in jail. If the task force can begin to deliver that kind of accountability, people are going to be a lot less cynical about their government.