Excerpt from Huffington Post:
The greatest moral hazard now confronting the nation is what appears to be increasingly brazen criminal activity by financial industry executives. With each decision not to prosecute, Wall Street executives justifiably conclude that they are immune to the rules. As a result, it appears that Wall Street criminal activity is increasing in frequency and severity, as opposed to the reverse. The activities surrounding the collapse of MF Global are one example.
So what can be done about it? We can change the behavior in the financial service industry for a full generation in just seven days. This plan may seem to be tongue and cheek, but it harkens back to a similar action in the era of the Great Depression. In the final months of Herbert Hoover’s presidency, the Senate Banking Committee began an investigation into the causes of the Great Crash of 1929, and a young prosecutor named Ferdinand Pecora was appointed as Chief Counsel. Subsequently, the Roosevelt administration conveyed to Pecora that “the prosecution of an outstanding violator of the banking law would be the most salutary action that could be taken at this time. The feeling is that if the people become convinced that the big violators are to be punished, it will be helpful in restoring confidence.” Ultimately, this investigation, which came to be known as the Pecora Commission, led to the indictment of one of America’s most prominent financiers; demonstrated widespread self-dealing in the financial sector; and, as noted by historian Alan Brinkley, generated “broad popular support” for Roosevelt’s reform agenda, including the creation of the SEC and the Glass-Steagall Act.
My seven day plan is based on a simple premise: When criminal laws are egregiously violated, the guilty parties should face appropriate punishment. Here’s the plan:
Day One: Read the HUD Inspector General’s reports and the public records of past mortgage foreclosure cases from across the nation.
Day Two: Meet with the team at the Office of the Inspector General at HUD that prepared the audits. Obtain the names of all the bank officials, lawyers, and notaries whose behavior, as cited in the audit reports or otherwise known to the investigators, represent clear and unquestionable criminal violations. Add to this list other individuals who have similarly demonstrated or testified to behavior unquestionably constituting criminal acts, as indicated by the public records of the mortgage foreclosure cases reviewed in day one.
Day Three: Indict all of the individuals on the list compiled on day two.
Day Four: Indict banks and financial institutions on criminal charges where criminal behavior by employees (as demonstrated by day three indictments) appears to be endemic. The Justice Department guidelines for prosecuting firms include: (1) the pervasiveness of such activity, (2) the compliance procedures in place, (3) attempts by the corporation to end bad behavior, and (4) cooperation with federal investigators. In 2008, the Justice Department adopted a policy of accepting “deferred prosecutions,” involving agreements to change corporate behavior without damaging innocent third parties through prosecution.
Corporations receive the benefits of “legal persons,” as demonstrated by Citizens United. But they must also bear the responsibilities of these privileges. A reading of the HUD reports, and other public records, suggests several banks should clearly be prosecuted.
Day 5: Discuss plea bargains with indicted lower-level officials in return for cooperating in investigations of higher-level officials.
Day 6: Consider plea bargains with indicted banks, which require the removal of all remaining officers and directors who were serving when egregious criminal activity occurred, as well as senior officials who were in a position to exercise appropriate supervisory responsibility but chose to look the other way.
Day 7: Indict any senior Wall Street officials implicated by new cooperative testimony resulting from activities on day five. Adopt and announce a policy that future criminal violations will be prosecuted in a similar fashion.
What is particularly disturbing is that a look at the evidence already in the public domain (much less what investigators already know) shows that none of the actions discussed above are entirely absurd. The purpose of prosecution is not simply punishment. It acts to deter further illegal activity and to restore public confidence in our system of governance. The nation desperately needs both of these benefits today.
Moreover, these ongoing, almost certainly criminal activities are ultimately dangerous threats to our economy, the success of capitalism, and our democracy. In his recent New York Times column on the collapse of MF Global, Joe Nocera noted that “customers need to be able to trust” the laws protecting their money. “Otherwise, the markets can’t function.”
Today, as in the era of FDR, we must send a message to the financial community that illegal behavior will not be tolerated. By prosecuting blatant felonies now, we will deter future misbehavior and begin the process of recreating a fair society where equal justice prevails.