The Chickensh*t Club
February 14, 2018 12:07 PM   Subscribe

In an alarming and comprehensive book published last summer, reporter Jesse Eisinger (previously) asks and attempts to answer Why Executives Don't Go To Prison Anymore?
Why Why federal prosecutors often wimp out in going after financial malfeasance? and why let corrupt bankers avoid jail? So why this book?
“I’ve been pretty obsessed with the financial crisis and its aftermath and why there were no prosecutions of top corporate officers from any of the financial institutions in the wake of the crisis,” Eisinger said. “It strains credulity that there wasn’t criminal fraud during the crisis and at the height of the crisis. And its strains the credulity of lawyers and prosecutors who I have talked with. This has become a commonplace observation.” “I don’t think fraud was necessarily at the heart of the financial crisis. But that doesn’t mean the crisis didn’t involve an enormous amount of fraud. I think it did.”

Is it that The United States has Lost The Will To Prosecute Corporate Executives?
Did Obama’s Failure To Prosecute Wall Street Set The Stage For Trump’s Win?
What Happened to the DoJ?
Interestingly, legal heavyweights making 2017 headlines such as James Comey, Preet Bharara, Eric Holder, Sally Yates, and Bob Mueller make cameos in Eisinger’s book, often in an unflattering, or at least mixed, context.

Club Fed
This is part of a familiar dance between government lawyers and their colleagues in the defense bar. Far from being entrenched opponents, prosecutors and defense attorneys are often colleagues who have spent years working together in the same white-shoe firms—and who fully expect to do so again in the future. The coziness, in fact, goes a long way toward explaining why the government has failed to indict and prosecute corporate criminals at the highest level. According to a study by the Transactional Records Access Clearinghouse at Syracuse University, federal prosecutions for corporate crime plunged by 29 percent between 2004 and 2014—a time that saw a massive housing bubble and collapse built on unconscionable fraud.
Lords of Misrule (previously related)
It’s abundantly clear, in other words, that the decision to refrain from prosecuting important actors in the corporate world was Obama White House policy, and this policy was part of an overall ideological shift away from allegiance to democracy itself, to rule by the people. What the administration did was so profoundly cynical that in 2016, when Wells Fargo was shown to have opened millions of fraudulent accounts, Loretta Lynch brought no charges—and Rich Cordray, the vaunted Consumer Financial Protection Bureau chief, instituted no penalties against Wells Fargo executives. Indeed, Cordray—someone who, like White, you could mess with at will if you possessed the right C-suite title—wouldn’t even say whether he recommended criminal penalties. And the real scandal in all this was that no one even noticed: that’s how inured Democrats have grown to swallowing the lies of a leadership caste that has no professional or material interest in pursuing anything resembling justice.

The Chickenshit Club does place a lot of the blame where it justly belongs, squarely in the culture of the big Ivy-encrusted law firms themselves. They are what Robert Jackson feared: a professional trust that employs its skills and social position to undermine democracy. Toward the end of his speech on the problems with corporate lawyers, Justice Jackson described his fear of what happens when the ends of government become remote from the wishes of the people due to the meddling of the bar and its assertions of fake complexity. “When free government becomes too perplexing and futile,” he said, “the people turn to dictatorship. It is the simplest form of government.”
posted by the man of twists and turns (32 comments total) 63 users marked this as a favorite
 
“When free government becomes too perplexing and futile,” he said
How would we know if it really was?
posted by Baeria at 12:16 PM on February 14, 2018


My unpopular and entirely unsubstantiated opinion is that if more (any, really) bankers had been prosecuted following the 2008 crisis, Hillary Clinton would be president today.
posted by MengerSponge at 12:17 PM on February 14, 2018 [25 favorites]


Iceland's utterly unique ability to jail some motherfuckers after the crisis sure waggles its eyebrows suggestively at a population cap for effective democracy.
posted by zjacreman at 12:18 PM on February 14, 2018 [27 favorites]


Hell - the "Consumer Financial Protection Bureau" won't even investigate the latest horrific financial data breach by Equifax last fall...

Maybe that's a more efficient strategy for saving government budget - why even investigate if you won't press any charges regardless.

Late-stage-capitalism indeed!
posted by jkaczor at 12:20 PM on February 14, 2018 [13 favorites]


...Actually, the paranoiac inside of me says: "of course a credit/data verification agency will never be investigated by the current administration, because POTUS's private business interests are dependant on having access to services provided by that company..."
posted by jkaczor at 12:23 PM on February 14, 2018 [1 favorite]


I would assume they can just make whatever they're doing legal, right?
posted by Naberius at 12:25 PM on February 14, 2018 [3 favorites]


What's the point of making it (or being born into) the top if you can suffer consequences for your actions?
posted by The Card Cheat at 12:30 PM on February 14, 2018 [6 favorites]


If the Democrats had shown some backbone and fought for full prosecution (let's not even get into whether the Republican majority in Congress would let them get anywhere) we could have a Democrat in the Whitehouse. Possibly even one house of Congress. However, the weak and largely bought & paid for Democratic party gave away everything to Trump.
posted by evilDoug at 12:35 PM on February 14, 2018 [3 favorites]


The problem with this argument is that it wants to put all the blame on prosecutors for not wanting to fight - and ignores how the Federalist Society cadre in our judicial system have gutted the laws needed to actually hold these individuals accountable. I once commented that the ruling that set Conrad Black free was "one of the lesser known atrocities of the Robert's Court", and I stand by that - the ruling gutted fair dealings laws, making prosecution of high level corporate criminals much harder.

Blame is like fertilizer - you have to spread it where it belongs for it to work.
posted by NoxAeternum at 12:37 PM on February 14, 2018 [16 favorites]


NoxAeternum: "The problem with this argument is that it wants to put all the blame on prosecutors for not wanting to fight - and ignores how the Federalist Society cadre in our judicial system have gutted the laws needed to actually hold these individuals accountable. I once commented that the ruling that set Conrad Black free was "one of the lesser known atrocities of the Robert's Court", and I stand by that - the ruling gutted fair dealings laws, making prosecution of high level corporate criminals much harder.

Blame is like fertilizer - you have to spread it where it belongs for it to work.
"

So.. let's blame the pro-business democrats who let this happen on their watch? The ultimate point is that none of the American government (no part of it) is interested in stopping corporate America. Even when you can get the one or two firebrand Democrats who push things like CFPB, the vast majority of our government is bought and paid for.
posted by TypographicalError at 12:40 PM on February 14, 2018 [22 favorites]


I haven't yet read this book because I know it's going to upset me, but one thing I'm sure he covers which has not yet been mentioned here is sheer disparity of resources. Any given white-collar prosecution of this kind is going to be staffed with a handful of lawyers who may be hard-working but are not necessarily up to working 80-hour weeks for years for the compensation involved. Meanwhile, the other side will deploy flotillas of lawyers who will work til they have heart attacks. D&O insurance basically insures that high-ranking corporate employees will have access to the best representation money can buy.

The FHFA (Fannie and Freddie's conservator agency) got something like $50 billion in (civil, obviously) settlements with the 19 banks they sued in connection with the financial crisis. But when the FHFA was created, it was not required, as most agencies are, to go through DOJ to litigate. It worked out a deal with two large private litigation firms to bring the cases, thus pitting flotilla against flotilla, and frankly did so well as to embarrass DOJ into its own less impressive set of settlements. But this is a very hard scenario to recreate.

Having seen both sides, I am genuinely not sure it is possible anymore for government prosecutors to overcome a determined and well-funded executive defense. Even if you win at trial, the Supreme Court is likely to end up handling the executive with absolute kid gloves on appellate review (Jeff Skilling is a free man today). That doesn't mean prosecutors shouldn't be out there trying--absolutely not. But I think that from the outside it's hard to appreciate the sheer practical difficulties involved here.
posted by praemunire at 12:47 PM on February 14, 2018 [26 favorites]


So.. let's blame the pro-business democrats who let this happen on their watch? The ultimate point is that none of the American government (no part of it) is interested in stopping corporate America. Even when you can get the one or two firebrand Democrats who push things like CFPB, the vast majority of our government is bought and paid for.

Remind me again which Democrat appointed John Roberts and Sam Alito?
posted by NoxAeternum at 1:36 PM on February 14, 2018 [3 favorites]


Remind me again which Democrat appointed John Roberts and Sam Alito?

Let's take a look

Baucus (D-MT), Yea
Bingaman (D-NM), Yea
Byrd (D-WV), Yea
Carper (D-DE), Yea
Conrad (D-ND), Yea
Dodd (D-CT), Yea
Dorgan (D-ND), Yea
Feingold (D-WI), Yea
Johnson (D-SD), Yea
Kohl (D-WI), Yea
Landrieu (D-LA), Yea
Leahy (D-VT), Yea
Levin (D-MI), Yea
Lieberman (D-CT), Yea
Lincoln (D-AR), Yea
Murray (D-WA), Yea
Nelson (D-FL), Yea
Nelson (D-NE), Yea
Pryor (D-AR), Yea
Rockefeller (D-WV), Yea
Salazar (D-CO), Yea
Wyden (D-OR), Yea

And for Alito

Byrd (D-WV), Yea
Conrad (D-ND), Yea
Johnson (D-SD), Yea
Nelson (D-NE), Yea
posted by Copronymus at 1:50 PM on February 14, 2018 [11 favorites]


The US has the best government that money can buy.
posted by Artful Codger at 1:50 PM on February 14, 2018 [3 favorites]


Interesting to see if the UK develops more teeth for the Carillion collapse.

Which apparently points up that there aren't enough big accounting firms to have a competitive market, and also they're predatory instead of regulatory.
posted by clew at 1:55 PM on February 14, 2018


Damn, I was really hoping the answer was going to be "guillotines".
posted by bashos_frog at 2:25 PM on February 14, 2018 [11 favorites]


Nothing happens to white collar criminals because they're primarily white and the criminal justice system in America mostly functions to terrorize and hurt people who are not.

There are many, many illustrations of this, but one is the very different ways that people who deal or use crack are treated vs the ways people who deal and use powdered cocaine, marijuana, and opioids are treated.

Obviously my point is not that penalties should be harsher for whites, but rather that we use drug laws as an excuse to punish people who aren't.
posted by mrmurbles at 2:27 PM on February 14, 2018 [4 favorites]


Well, they did prosecute those Chinese-American bankers, so there’s that.
posted by Big Al 8000 at 2:48 PM on February 14, 2018 [4 favorites]


F*ck that prison crap. I want them proving their loyalty to their company with their failures. I want seppuku.

/* Edited to match the self-censorship of the title. */
posted by Nanukthedog at 3:36 PM on February 14, 2018 [2 favorites]


Well, they did prosecute those Chinese-American bankers, so there’s that

Worth noting that that was the Manhattan DA, not any state or federal agency. And they lost against what looks from the outside at least like a pretty modestly-funded defense.
posted by praemunire at 3:40 PM on February 14, 2018 [3 favorites]


The law is always written for the last crisis. Some of the most egregious acts of this crisis weren't clearly malfeasance per the law at the time. At least the securities stuff. Pair that with the disparity of resources and the desire not to be seen losing prosecutions and that's how you end up with the unsatisfactory outcome we got.
posted by JPD at 3:44 PM on February 14, 2018 [8 favorites]


The US has the best government that money can buy

I find this sentiment very offensive. If I had Koch-level money, I think I could buy a much better government than this one.
posted by qxntpqbbbqxl at 4:52 PM on February 14, 2018 [16 favorites]


My husband and I are watching the Netflix documentary series, Dirty Money, which starts with an episode on Volkswagen's fraudulent hiding of NOx emissions, examines Skrelli, takes on HSBC and Mexican drug cartels, and ends with an episode called "The Confidence Man" about legendary shady deal-maker Donald Trump.

We just watched episode 2, "Payday" about payday lender/race-car driver Scott Tucker, who cheated poor people out of hundreds of millions of dollars in a racket he calls a legitimate business. He was fully prosecuted, which he totally deserved, but at one point in the film, he asks why he was being investigated and tried when big banks and financial institutions got no punishment at all? It was the only thing he said in the entire film that I agreed with. Letting the big banks nearly destroy the world economy with no real repercussions was a serious mistake. I recommend this series, by the way. The first two episodes were very compelling.
posted by ceejaytee at 5:56 AM on February 15, 2018 [2 favorites]


The law is always written for the last crisis. Some of the most egregious acts of this crisis weren't clearly malfeasance per the law at the time. At least the securities stuff.

I disagree strongly. Civil fraud and criminal fraud are primarily distinguished by standards of proof, not by the substantive nature of the crimes themselves.
posted by praemunire at 7:48 AM on February 15, 2018 [1 favorite]


I know this is probably not going to be a popular opinion, but I think the reason that there have been few prosecutions is because there was no systemic fraud occurring. Sure, there were probably tons of individual cases of fraud, but not at a rate that was out of the ordinary and not pushed from the CEOs on down. Individual fraud cases have been brought, prosecuted and punished like the normal crime it was by state prosecutors where it occurred.

Some evidence, here: but the important parts:
Discussion
Through all of that subprime lending, fraud, and everything else foul going on at banks, the home ownership rate was falling, not rising. 'So, even the year with the highest level of subprime originations and housing starts, with homes bought at the top price of the market, were preforming within the range of the previous five years. Think about how much this contrasts with rhetoric about this period of time. These were households who, as of 2008 or 2009, were experiencing the worst home price performance of the post-WW II era, by a wide margin. They are the unluckiest set of homeowners in modern US experience, and they had used non-conventional financing at a scale far outside any previous ranges. And loan performance was normal.'

So all these scofflaws, subprime as can be, are all paying their mortgages as normal people do until the world economy crashed. BTW, the home price index is as high now as it was then, so price apparently isn't a driver of fraud unless we are *currently* buried in a market of fraud and have been (for I guess) the last 5 years, which would have connected with the previous fraud so basically anyone who has bought a house since 2000 or so probably did it fraudulently. Not you though. You are cool. But we wanted to see fraud even though it wasn't there. From a discussion of a S&P downgrade report about fraud at the link above.

'That is a very strong effect from underwriting fraud from a market that just 2 years prior appears to have created a cohort of mortgages that performed very well. In two years, with similar rates of originations, subprime loans went from being benign in the face of extreme volatility to being so devoid of honest underwriting that FICO, LTV, DTI, and many other reported variables had no explanatory value at all? And the fraud was so universal that even the issuer wasn't explanatory? Fraud somehow meant even the terms of the mortgages weren't explanatory?'

So what did the S&P do? They tightened regulations which further shutdown housing driving more unemployment. Further evidence shows that down payments and most other indicators of home buying ability haven't changed at all, and in-fact have gone up (as you can see that is probably due to lower income people being boxed out of the home purchasing at all).

And even if prosecutors didn't crush the big companies, the FOMC had the tools to crush the individual fraudsters in 2006:
'The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
Economic growth was moderate during the first half of the year. Financial markets have been volatile in recent weeks, credit conditions have become tighter for some households and businesses, and the housing correction is ongoing. Nevertheless, the economy seems likely to continue to expand at a moderate pace over coming quarters, supported by solid growth in employment and incomes and a robust global economy
.'

BZZZZT. Wrong. The economy began contracting (not moderately expanding) and all those people who had been paying their mortgages and living in their houses got crushed. So austerity crushed out all the fraud. Sorry if you lost your job too while we were taking care of the fraud.
posted by The_Vegetables at 8:21 AM on February 15, 2018


I know this is probably not going to be a popular opinion, but I think the reason that there have been few prosecutions is because there was no systemic fraud occurring

This thread is about executive malfeasance, not systemic fraud, for instance whether Jamie Dimon (et many al) violated Sarbanes-Oxley §302, which has a criminal component.
posted by rhizome at 10:05 AM on February 15, 2018 [3 favorites]


So all these scofflaws, subprime as can be, are all paying their mortgages as normal people do until the world economy crashed.

The world economy crashed because, at the root, they stopped paying their mortgages. Because, for a subset, their adjustable-rate mortgages with ridiculously low teaser rates reset and they couldn't pay anymore, and the failure ramified out from there.

BTW, the home price index is as high now as it was then, so price apparently isn't a driver of fraud unless we are *currently* buried in a market of fraud and have been (for I guess) the last 5 years,

Respectfully, I'm going to suggest that if you don't understand the possible correlation of other macroeconomic factors, most particularly the world-historically (and artificially) low interest rate, to current house prices, you may not be best equipped to analyze this situation.
posted by praemunire at 12:23 PM on February 15, 2018 [2 favorites]


So what did the S&P do? They tightened regulations

the FOMC had the tools to crush the individual fraudsters in 2006

P.S. This is, genuinely, gibberish. If you're referring to the stock index, they don't regulate. If you're referring to the ratings agencies, neither do they. And adjusting interest rates would "crush individual fraudsters?" What?
posted by praemunire at 12:28 PM on February 15, 2018 [2 favorites]


most particularly the world-historically (and artificially) low interest rate

Artificially low? And what would be the non-"artificial" interest rate? If the Fed were to raise interest rates, would the new rate be non-"artificial"?
posted by JackFlash at 12:57 PM on February 15, 2018


This is why we need Elizabeth Warren as president.

Anyway, prosecution would have been nice, but we couldn't even put common sense protections in place. Dodd Frank is gone now right? And Democrats helped dismantle Glass-Steagal. It boggles the mind.
posted by xammerboy at 7:02 AM on February 16, 2018 [1 favorite]


If you want an establishment-insider perspective, Judge Rakoff has written several pieces on this for the New York Review.

The Financial Crisis: Why Have No High-Level Executives Been Prosecuted?

Justice Deferred Is Justice Denied (about deferred prosecution agreements)

The Cure for Corporate Wrongdoing: Class Actions vs. Individual Prosecutions
posted by grobstein at 10:10 AM on February 17, 2018


What’s Behind One of the Biggest Financial Scams in History - "Journalist David Enrich exposes the brazenness of the LIBOR scam committed by some of the world's largest banks."
And prosecutors, instead of going after people at the top of the food chain — the CEOs and business leaders who are responsible for setting the culture at their institution, responsible for in many cases the practices of their institutions — instead of going after those guys, they uniformly went after a small group of relatively low-level people. Don’t get me wrong, Hayes in particular did things that were wrong, he knew they were wrong, or at least should have known they were wrong, and deserves to be punished. But what is crazy to me is that Tom Hayes is currently serving an 11-year sentence in a maximum-security prison. And as far as I can tell, he is the only banker currently in jail for crimes committed during the financial crisis.

… One of the things I found interesting researching this book is that there are a lot of people out there, experts in law enforcement and criminal justice, who really think that the situation we’re now in is a direct result of a lack of ambition and creativity and guts among prosecutors in some of the biggest countries in the world, including the U.S. The thing is, prosecutors do not like to lose cases, so they’ve taken, in general, a very conservative approach to what cases they’re going to bring because they don’t want to gamble on losing. They’ve built up these very impressive win/loss records as prosecutors. Some of them are undefeated. And they boast about that.

To me, that’s a really unhealthy sign, because the thing that would scare some of these bank CEOs is not losing some money or losing their jobs; it’s the prospect of being perp-walked in front of TV cameras in handcuffs, or the prospect of possibly losing your liberty in front of a jury of your peers. That is a terrifying thing. To me, the great missed opportunity of the financial crisis was that prosecutors didn’t do that a single time with a CEO or a top executive of any major financial institution. They might have lost those cases, but at least it would have struck some fear in the hearts of people. That’s just a tremendous missed opportunity, in my opinion.
posted by the man of twists and turns at 11:21 AM on February 21, 2018 [1 favorite]


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