"[O]ne of the more egregious failures of the criminal justice system..."

December 5, 2013 9:08 PM

U.S. District Court Judge Jed Rakoff on "Why Have No High Level Executives Been Prosecuted In Connection With The Financial Crisis?" Judge Rakoff, a federal trial judge who sits in the Southern District of New York, writes: "[M]y point is that the Department of Justice has never taken the position that all the top executives involved in the events leading up to the financial crisis were innocent, but rather has offered one or another excuse for not criminally prosecuting them – excuses that, on inspection, appear unconvincing."
posted by jayder (28 comments total)

Nobody ever said it better than Eugene V. Debs: "There is something wrong in this country; the judicial nets are so adjusted to catch the minnows, and let the whales slip through."
posted by scody at 9:28 PM on December 5, 2013 [43 favorites]

Unless there's hard evidence that a CEO was willfully involved in making the decisions that led the the toxic mortgages, etc., I don't have a problem with them not going to jail.

But I see nothing wrong with saying "This corporation as a whole operated in a manner that caused harm, and therefore it will be dissolved. It will be broken into X number of smaller companies, and each shareholder will receive shares distributed according to the asset distribution of the new companies. They are further prohibited from attempting to acquire one another or from being acquired by anyone else for N years."

It effectively punishes the management by taking away the large entities they controlled, and removes them from the too big to fail folder as well. I'm sure there are problems with this idea that someone will point out down-thread but it would at least feel like something was being done.
posted by CheeseDigestsAll at 9:43 PM on December 5, 2013 [26 favorites]

cheeseDigestsAll: Unless you work at that company, have for years, and you didn't do shit, and would suffer great expense because of the DoJ going after many people as a whole.
posted by captainsohler at 9:53 PM on December 5, 2013

"Why Have No High Level Executives Been Prosecuted In Connection With The Financial Crisis?"

Pretty sure this is a rhetorical question.
posted by ZenMasterThis at 10:10 PM on December 5, 2013 [1 favorite]

captainsohler: the rest of us suffered great expense...

That said, the second solution, splitting up the corporations into much smaller companies would punish management and preserve the jobs (heck maybe even result in several promotions) of the rank and file employees.
posted by Freen at 10:17 PM on December 5, 2013 [3 favorites]

This corporation as a whole operated in a manner that caused harm, and therefore it will be dissolved. It will be broken into X number of smaller companies, and each shareholder will receive shares distributed according to the asset distribution of the new companies.

Too much work. We already have a well established ways to conclude business operations. just liquidate the assets and disburse the proceeds to the shareholders. Caveat Emptor and all that.

and you didn't do shit,

What the person didn't do was make sure the company they used to work for wasn't an illegally operated criminal enterprise.

Yeah, I know, you don't get to sit in the boardroom. But "Only following orders" wasn't a good excuse at one point, was it?
posted by mikelieman at 10:18 PM on December 5, 2013 [3 favorites]

Keep in mind, I'm what you might call an "Economic Calvinist". There's no reason to create dependence by these Artificial Legal Entities on governmental support, if they're destined to failure anyway due to inherent, fundamental failures in their corporate "character".
posted by mikelieman at 10:19 PM on December 5, 2013

Unless you work at that company, have for years, and you didn't do shit, and would suffer great expense because of the DoJ going after many people as a whole.

Presumably this is why they never put the guy who steals fifty bucks from the 7/11 store in jail, out of deference to his innocent wife and children.
posted by JackFlash at 10:30 PM on December 5, 2013 [30 favorites]

Prosecutorial discretion in this country has become a serious problem. I understand why it needs to exist, generally, why there needs to be some flexibility, but at this point you can drive a truck through the gaping holes in it for racial and class bias. This is part of why I had to leave law school; I just could not summon up a belief that the system actually works for anything but the 1%. The poor can't afford access to the civil system and adequate defense in the criminal system as it is, but when the state just plain systematically refuses to prosecute the wealthy, how do we say we have anything like a "justice" system?

Except all the people who'd be making the decision to tighten this up are themselves people who benefit from those standards. Like Bob McDonnell being "investigated" and also given plenty of time to come up with enough money to pay back all the loans that would almost certainly not have been loans if nobody had ever heard about them--politicians get as much benefit from these standards as big business.
posted by Sequence at 11:46 PM on December 5, 2013 [9 favorites]

It was the government, in the form of the executive, that strongly encouraged banks to make loans to low-income persons who might have previously been regarded as too risky to warrant a mortgage.

This is nonsense. Underwriting standards were disregarded left and right for the sake of easy money. There is no motivation to properly vet a borrower when their mortgage will be instantly sold, resold, and packaged into supposedly investment grade bonds long before they can default.
posted by dr_dank at 4:27 AM on December 6, 2013 [7 favorites]

If they lay claim to the outlandish bonuses they get when the company shows a profit, they oughta take their lumps when the company breaks the law.

It's a world full of trouble, a world full of pain,
I'll take the profit, but I won't take the blame.-Etta James
posted by Enron Hubbard at 5:22 AM on December 6, 2013 [2 favorites]

Because we have a crappy Attorney General?
posted by IndigoJones at 7:13 AM on December 6, 2013

The idea of too difficult and too complicated reminds me of the Wire, where law enforcement wasn't interested in spending the time and money on building cases against the "management" of the drug trade. It's outrageous. Of course investigations made certain politicians uncomfortable to say the least.

Loved Inside Job.

Interview with Charles Ferguson.

But hey, at least law enforcement got the guy who ran isohunt!
posted by juiceCake at 7:52 AM on December 6, 2013 [1 favorite]

I wish mandatory minimum sentencing worked in exactly the reverse way as it does now.

Teenager mugging or shoplifting? Lots of prosecutorial discretion. Billion dollar fraud? Mandatory minimum sentences in aggregate for the entire corporation.

In fact, let the employees share the sentence in proportion to their salaries. Presumably the CEO was getting paid 10,000x the janitor's salary because he was 10,000x more responsible, so put the janitor in jail for a day and the CEO can do 27 years behind bars.
posted by RedOrGreen at 7:55 AM on December 6, 2013 [6 favorites]

RedOrGreen: then the employees pray the CEO won't do the "I'll work this year for $1" thing (like Vikram Pandit of Citigroup did)...
posted by mephron at 8:39 AM on December 6, 2013 [1 favorite]

Yeah, I know, you don't get to sit in the boardroom. But "Only following orders" wasn't a good excuse at one point, was it?

Hey, you had your opportunity to elect government leaders who would appoint regulatory officials who would prevent these shenanigans from occurring, and you seem to have squandered this great opportunity. So Nazi.
posted by leopard at 9:28 AM on December 6, 2013

cheeseDigestsAll: Unless you work at that company, have for years, and you didn't do shit, and would suffer great expense because of the DoJ going after many people as a whole.
posted by captainsohler at 9:53 PM on December 5 [+] [!]

Here's the problem with that logic... by it's very nature even the guy who empties the trash is profiting from the illegal behavior. The causal employee SHOULD suffer some expense because they were benefiting from something that should have never happened.

The only point I concede is that this would affect the lower level employees more, since they are the ones more likely to be living month to month and would have a hard time finding that next job.

But if you improve the social safety nets, like welfare, SNAP, socialized medicine or that 'just give everybody cash' nordic mentality, then you actually lessen that fall and make it more likely that the peons would be willing to also be the whistle-blowers.

Which is probably also why the pro-executive GOP is against these sorts of things.
posted by Blue_Villain at 9:38 AM on December 6, 2013

Too much work. We already have a well established ways to conclude business operations. just liquidate the assets and disburse the proceeds to the shareholders. Caveat Emptor and all that.

What the person didn't do was make sure the company they used to work for wasn't an illegally operated criminal enterprise.

By that reasoning, aren't the shareholders also responsible for funding an illegally operated criminal enterprise?
posted by The Great Big Mulp at 10:41 AM on December 6, 2013

By that reasoning, aren't the shareholders also responsible for funding an illegally operated criminal enterprise?

Hell of a Rabbit Hole, isn't it, once you start holding Artificial Legal Entities actually accountable?
posted by mikelieman at 1:30 PM on December 6, 2013 [1 favorite]

It was the government, in the form of the executive, that strongly encouraged banks to make loans to low-income persons who might have previously been regarded as too risky to warrant a mortgage.

Not according to the Federal Reserve. And they have access to the raw data:

nearly 60 percent of higher-priced loans went to middle- or higher-income borrowers or neighborhoods, which are not the focus of CRA activity
posted by dhartung at 2:14 PM on December 6, 2013 [3 favorites]

RedOrGreen: "Teenager mugging or shoplifting? Lots of prosecutorial discretion. Billion dollar fraud? Mandatory minimum sentences in aggregate for the entire corporation officers. "

FTFY. No sane human being wants Chase Bank tellers imprisoned for Chase Bank Inc. securities fraud.
posted by IAmBroom at 3:49 PM on December 6, 2013

Blue_Villain: "Here's the problem with that logic... by it's very nature even the guy who empties the trash is profiting from the illegal behavior. The causal employee SHOULD suffer some expense because they were benefiting from something that should have never happened."

Utter computer-chair-general nonsense. A minimum-wage (or near-mw) employee is profiting from bank fraud and negligence? How, exactly, when he's being paid an hourly wage for honest work, wholly unrelated to the fraud?

This kind of "everyone on the wrong side is 100% tainted" irrational tantrum lead to the impoverishment of Germany after WWI, and would have led to a 2nd Civil War in the US had cooler heads not prevailed. It's less defensible than an-eye-for-an-eye; in this strategy even the toes get stubbed, just for hanging out near the eye.
posted by IAmBroom at 3:54 PM on December 6, 2013 [3 favorites]

dhartung: "Not according to the Federal Reserve. And they have access to the raw data:

nearly 60 percent of higher-priced loans went to middle- or higher-income borrowers or neighborhoods, which are not the focus of CRA activity"

Here's the problems with that statement:

1. That implies up to 40% of the loans are still high-risk. That's HUGE.

2. IRDC where the higher-priced loans went to. I want to know where the majority of the money loaned went to. If five million-dollar loans went to low-risk clients, and 10,000 of the thousand-dollar loans went to high-risk clients, you could boast that 100% of the higher-priced loans were low-risk... but 2/3 of the money is still at high risk.
posted by IAmBroom at 3:59 PM on December 6, 2013 [1 favorite]

That implies up to 40% of the loans are still high-risk. That's HUGE.

This is the zombie lie that will not die, that the CRA caused the subprime meltdown. The percentage of loans in CRA covered areas was only 6%. Banks weren't making risky loans because the government forced them. They were making risky loans because the banks were getting rich off them because of their high profit margins.

Countrywide? Never made one single CRA loan. Las Vegas? No CRA loans. Florida condos? No CRA loans. California central valley? No CRA loans. CRA loans were limited to urban centers of large cities. CRA loans had half the default rate of the average subprime loan.

This idea that the government forced the banks to make subprime loans is just rank racial bigotry, trying to shift the blame to the usual suspects. Banks were pushing loans on anyone who could breathe because they were making money hand over fist.
posted by JackFlash at 4:30 PM on December 6, 2013 [10 favorites]

Unless you work at that company, have for years, and you didn't do shit, and would suffer great expense because of the DoJ going after many people as a whole.

How does that make everyone suffer? Presumably, everyone still has a job, albeit at a smaller company. Those people who take the biggest salary hit would be the ones at the top, who are the ones who were supposed to be providing oversight.
posted by CheeseDigestsAll at 5:35 AM on December 7, 2013

During my ten-year long legal career, I only handled a few federal criminal cases, but one was a mortgage fraud case where my client was accused of falsifying his income on a mortgage application. And he was accused of subsequently lying to the federal investigators who came to interview him about it.

My client had no criminal record and, while the government had an arguably solid case against him at least on the false statement count, I felt he was an excellent candidate for pre-trial diversion. In my federal district (maybe in all of them) it is discretionary with the US Attorney's office to grant or not grant diversion. There is no judicial diversion in the federal system (that is, no diversion granted by the court). So I had to apply to the AUSA handling the case; she denied it, as expected because she was known to be awful for defense attorneys to work with. I appealed to her boss, head of the criminal division in the US Attorney's office, and she denied it. I appealed to the second in command, the Deputy US Attorney, and he denied it. And then I appealed to the US Attorney for my district, a George W. Bush appointee who actually met with me (none of the others did).

The US Attorney bluntly said he could not offer diversion in the "current political climate," he felt he was just exposed to too much potential blowback by showing any leniency to my client.

So it is particularly galling to read about deferred prosecution agreements being routinely reached with corporations (essentially pretrial diversion) ... but the same courtesy not extended to low-level individuals who have no criminal records?!?! Concern for political fallout by being lenient to a guy in his twenties, but that's apparently not a concern when deciding whether to prosecute corporate malfeasors?

This sort of bullshit is why I roll my eyes when I hear people wax poetic about the greatness of our country or the merits of our legal system.
posted by jayder at 8:56 AM on December 7, 2013 [5 favorites]

This is the zombie lie that will not die, that the CRA caused the subprime meltdown.

Bunch of links in wikipedia (yeah, yeah, I know - I refer you to the footnotes) if you want to check out the arguments for yourself.
posted by IndigoJones at 4:42 PM on December 8, 2013

JackFlash: That implies up to 40% of the loans are still high-risk. That's HUGE.

This is the zombie lie that will not die, that the CRA caused the subprime meltdown.

Not sure what "lie" you're referring to, because nothing I said was a lie.

I pointed out why the Federal Reserve's statement was misleading. That stands.
posted by IAmBroom at 9:31 PM on December 8, 2013