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President Obama fails to go after those responsible for the financial meltdown

By James Lieber,

October 27, 2009,

Miami New Times News

When Barack Obama donned the crusader’s mantle during the 2008 presidential campaign, his web-savvy team created KeatingEconomics.com. The main video showed Charles Keating – the wealthy, politically connected poster child of the ’80s savings-and-loan scandal – in handcuffs.

The video portrayed John McCain as Keating’s stooge and likened the S&L crash to the 2008 Wall Street meltdown. Today’s corporate villains were flashed on the screen, among them AIG, Bear Stearns, Lehman Brothers, Fannie Mae, and Freddie Mac. The opening narrator was Bill Black, a Ph.D. criminologist and lead attorney at the government’s Office of Thrift Supervision. Black helped steer the brilliant federal effort that cleaned up the S&L industry, won more than 1,000 felony convictions, and recovered millions of ill-gotten dollars.

Those watching the compelling attack ad had every reason to believe Obama’s approach would be just as hard-edged, and that felon-busting G-men would rout the crooks and recover our money.

This was not to be.

As it stands now, there’s only one federal prosecution related to the credit crash and bailout cycle, and it was begun by the Bush administration in June 2008.

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The nation’s new top prosecutor, Attorney General Eric Holder, has a history of preferring that deviant corporations be held to no more than a “voluntary cooperation” system in which they privately investigate themselves. Under the “Holder Memo,” written in 1999 when he was deputy AG in the Clinton administration, bad-boy executives and their corporations who turn over evidence to the government qualify for lenient sentences and fines; sometimes they simply walk. The consequences of their crimes often amount to only the cost of doing business.

But the administration’s dull claws shouldn’t surprise us: Obama was Wall Street’s preferred candidate in terms of campaign contributions. And his SEC team includes Wall Street insiders who appear to have no interest in making sure their former co-workers are regulated or, worse, prosecuted for their role in the financial mess.

Last spring, Holder appointed Lanny Breuer, his former partner at the major Washington, D.C. firm Covington & Burling, to head the U.S. Department of Justice Criminal Division. As chief of Covington & Burling’s white-collar crime department, Breuer was known for his rogue gallery of corporations and individuals under investigation or indictment. His clients included Halliburton, Freddie Mac, Exxon Mobil, and big pharmaceutical companies.

In 2006, Breuer represented Mario Gabelli, a billionaire broker and money manager who had been the highest-paid person on Wall Street. When Gabelli got in hot water for setting up straw entities to bid for cell phone licenses, Breuer savaged the person who blew the whistle on the scheme and kept his client out of criminal court. He also represented Canadian mogul Eugene Melnyk, who was charged with accounting fraud by the SEC, and the lieutenant governor of American Samoa, who was indicted for bribery and bid rigging.

Breuer’s connection to Freddie Mac is especially troubling. One of the executives at the heart of the global meltdown was Franklin Raines, the CEO of Fannie Mae. Freddie and Fannie bought mortgages from other banks at a breakneck pace, which fueled the bubble and led to their federal bailouts and takeovers in September 2008. Politically wired – he was Bill Clinton’s director of the Office of Management and Budget – Raines aided and abetted the process by orchestrating massive accounting and compensation fraud at Fannie Mae. He paid a small civil settlement and has never been criminally charged.

The Department of Justice refused requests to interview Breuer and Holder. Asked whether Raines will be indicted, a DOJ spokesperson wouldn’t comment.

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The only real prosecution related to the subprime crisis came during the Bush era.

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Paul Volcker, the former Fed head and current Obama adviser, recently indicated that the White House remains committed to the concept of “too-big-to-fail,” meaning the megabanks will continue to have a safety net and may ask for more bailouts. Currently, 19 financial institutions are on the protected list. Their business model hasn’t changed materially since the crisis.

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The idea of a super-Fed as top financial cop as well as the nation’s central bank is colossal and colossally bad, and not just because the Fed is notoriously secretive – the opposite of Obama’s pledged “transparency.” The Fed chair is, by law, independent and doesn’t answer to the president or Congress. As for Bernanke, he is an academic economist with no enforcement or justice chops who, in tandem with Henry Paulson, force-fed the nearly worthless Merrill Lynch to the foundering Bank of America.

And that story just keeps getting worse.

The House Committee on Oversight and Government Reform recently investigated the federal outlays that helped Bank of America buy Merrill Lynch. During the hearings, Ohio Rep. Dennis Kucinich showed through internal Fed documents that Paulson and Bernanke ignored “evidence that the Bank of America withheld information from its shareholders about mounting losses at Merrill Lynch before the crucial shareholder vote on December 5 – a potentially illegal act.” In short, the Fed and Treasury have been accused of condoning a titanic securities fraud. But government approval of an offense often makes it more difficult to prosecute the culprit criminally