Hats off to writer Matt Taibbi for staying on the Wall Street crime beat, asking in his most recent report in Rolling Stone: “Why Isn't Wall Street in Jail?”
“Financial crooks,” he argues, “brought down the world's economy—but the feds are doing more to protect them than to prosecute them.”
True enough, but that’s only part of the story. The Daily Kos called his investigation a “depressing read” perhaps because it suggests that the Obama Administration is not doing what it should to rein in financial crime.
Many of the lawyers he calls on to act come from big corporate law firms and buy into their worldview. They have no appetite to go after executives they know and naively hope will help speed our economic “recovery.”
Kos should be more depressed by the failure of the progressive community—his own readers—to focus on these issues, and for not pressing the government to do the right thing. Without pressure from below, there is often little action from above.
There is no doubt that Administration policy gave crooks great latitude, as financial journalist Yves Smith explains, “The overly generous terms of the TARP, and the failure of Team Obama to force management changes on the industry in early 2009 was a fatal error. It has embedded and emboldened a deeply corrupt plutocracy.”
There is, however, much more to this story. It’s also more about institutions than individuals, more about a captured system that enables and covers up crime and, then, deflects attention away from the deeper problem.
You could see that when Television host Bill Maurer pressed Taibbi to name the biggest Wall Street crooks, on his weekly political comedy show, he didn’t fully understand what we are really up against.
Here are ten factors that help explain the procrastination and rationalization for inaction. The government is not just to blame either. Several industries working together, through their firms and associations, associates, and well-paid operatives, collaborated over years to financialize the economy to their own benefit.
Personalizing bad guys makes for good TV without offering a real explanation.
When financial institutions and services became the dominant economic sector, they, effectively, took over the political system to fortify their power. It was a done incrementally, over years, with savvy, foresight, and malice.
First, many of those who might later be charged with financial crimes and criminal fraud invested in lobbying and generous political donations to insure that tough regulations and enforcement were neutered before the housing bubble they promoted took off.
They did so in the aftermath of the jailing of hundreds of bankers after the S&L crisis, to guarantee that could never happen again when the next crisis hit.
In effect, their deregulation strategy also deliberately “decriminalized” the environment to make sure that practices that led to high profits and low accountability would be permissible and permitted.
Presto: The once illegal soon became “legal.”
The cops and watchdogs were taken off the beat. They engineered a low-risk crime scene in the way the Pentagon systematically prepares its battlefields. This permitted illicit practices, to be encouraged by CEOs in a variety of control frauds to keep profits up so that the executives could extract more revenue with obscene bonuses and compensation schemes.
Second, the industry invented, advertised, and rationalized exotic financial instruments as forward-looking ‘innovation” and “modernization” to disguise their intent while enhancing their field of maneuver. This was part of creating a shadow banking system operating below the radar of effective monitoring and regulation. There was no focus on controlling the out of control power of the leverage-hungry gamblers at unregulated hedge funds.
Third, the industry promulgated economic theories and ideologies that won the backing of the economics profession which largely did not see the crisis coming, making those who favored a crackdown on fraud appear unfashionable and out of date. As economist James Galbraith testified to Congress:
“The study of financial fraud received little attention. Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students.
“Economists have soft-pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble. They continue to do so now.”