Criminal justice, as it pertains to the Goldmans and Morgan Stanleys of the world, is not adversarial combat, with cops and crooks duking it out in interrogation rooms and courthouses. Instead, it's a cocktail party between friends and colleagues who from month to month and year to year are constantly switching sides and trading hats....Hard to argue with that. Working in the upper reaches of the SEC or banking regulatory agencies has long been regarded as a ticket to lucrative employment with a big-time financial firm. The revolving door rotates the other way, too, when Wall Street bankers and lawyers opt for a spell in public service, often followed by a return trip back into finance. As Taibbi notes, over the last decade more than a dozen former senior SEC officials have gone to work for major investment banks or law firms.
All of this paints a disturbing picture of a closed and corrupt system, a timeless circle of friends that virtually guarantees a collegial approach to the policing of high finance.
Such coziness goes beyond wink-and-a-nod fraternizing among fellow Ivy Leaguers. Government agencies charged with policing the financial industry, notably the SEC and ultimately the Justice Department, openly consort with Wall Street. Taibbi cites a November speech by SEC director of enforcement Robert Khuzami, a former attorney for Deutsche Bank (DB), in which the regulator seems to suggest that the agency would give financial firm attorneys advance warning if the DOJ planned to crack down on any of their executives:
The SEC's enforcement director was saying, in essence, that firms like Goldman Sachs and AIG and Lehman Brothers will henceforth be able to get the SEC to act as a middleman between them and the Justice Department, negotiating fines as a way out of jail time.Washington: Present at the scene of the crime
Lunacy. It's also evidence of the separate legal standard applied in prosecuting white-collar crime. (Although if there's a government agency that will run interference for me with the cops the next time I have to double-park, sign me up.) But Taibbi's explanation, while helpful, doesn't go far enough.
The bigger reason the feds are reluctant to prosecute financial execs is that they are effectively implicated in the crime. The SEC, DOJ and banking agencies didn't simply fail to regulate Wall Street firms in the years leading up the financial crash -- they eagerly participated in creating the economic incentives that encouraged companies to commit fraud.
So did Congress under Republican and Democratic control alike. Put Goldman CEO Lloyd Blankfein on the stand for using the firm to run a giant "control" fraud and he would tell the government, "But you knew exactly what we were doing." And in many ways he'd be right.
That linkage between Wall Street and Washington is alive and well. So putting top banking execs on trial cuts a little too close to home.
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- Financial Crisis: Massive Delusion, Sure -- but Also a Massive "Control" Fraud
- Why Scapegoating SocGen "Rogue" Jerome Kerviel Won't Reform Wall Street