Eyal Press wrote an interesting piece this week, comparing the excessive attention that Justice Department prosecutors have directed at whistleblowers in the national security world in recent years to the absolute disinterest with which these same attorneys treat Wall Street whistleblowers.
He’s right. In fact, it’s striking. But finally, the real story behind the lack of criminal prosecutions produced by the financial crisis of 2008 and the ensuing Great Recession is starting to seep out. It’s a sorry tale of edited testimony, arm twisting and rule changing.
After the financial meltdown in September 2008, the Obama administration “rescued” both commercial and investment banks, as well as insurance monolith AIG. Tim Geithner, Henry Paulson, Jamie Dimon and the other Masters-of-the Universe staged a revival of the US economy in a stunning, all-star production that fall season. It was a spectacular performance. There was the mystery of the closed-door deals, the suspenseful, whipsaw swings of the Dow, the zany antics of the Republican presidential candidate, and the breathtaking confrontation with Congress. When it was over, we were all exhausted, and the Justice Department rang down the curtain.
Except that for many Americans, it wasn’t over. While Wall Street and the Treasury Department lived happily ever after in each others’ arms, millions of former homeowners and job holders suffered on, as the not-so-romantic casualties of all that drama. For reasons unexplained, however, the last act, in which the good guys best the bad guys, never happened.
In contrast, Press pointed out, the Justice Department doesn’t hesitate to charge whistleblowers who expose waste, fraud, murder, torture and diplomatic stupidity as enemies of the state and a threat to national security. For that show, federal prosecutors join the cast, charges and indictments in hand.
But let’s think about this. Which is a real threat to national security?
A) news of a billion-dollar (at least) boondoggle non-operative electronic surveillance scheme, or
If you’re the US Justice Department, the correct answer is “A.” Thus, Tom Drake was prosecuted under the Espionage Act of 1917 for disclosing – through appropriate channels – the profligate tendencies and inefficiency of the National Security Agency (NSA). Incorrect is “B,” and therefore the bankers who occasioned the ballooning of the national debt after 2008 are not considered worthy of investigation.
Weird. Here in America, we’ve experienced two ghastly events on September 11ths in the past decade: one in 2001, and the second in 2008. On September 11, 2008, a headline in the New York Times read: “Shares Continue Decline as Lehman Looks for Buyer.” The story detailed the ways in which the Federal Reserve and Lehman senior management desperately sought a partner for the investment house as it tried to avoid bankruptcy.
In any event, some sort of resolution [to Lehman’s crisis] is expected over the weekend. The test will come if potential buyers balk at a purchase without the Fed’s backing. If that were to happen, federal officials would be left to evaluate what risks a sudden collapse of Lehman might pose to the broader financial system.
The rapid decline of Lehman underscores that investors remain unnerved, with rumors about an institution’s problems quickly becoming a self-fulfilling prophecy, as other banks seek to distance themselves to limit their financial exposure.
At this point, Lehman has few options.
It was all there: the imminent collapse of Lehman Brothers, the contagion affecting the too-big-to-fail banks, the lack of “options,” and the risk to the larger financial system. Over the course of the next three years, the housing market would disintegrate, unemployment would skyrocket, and the national debt would soar.
As we all now know, before the September 2008 catastrophe, there had been warnings. But GAP client, Eileen Foster, had no luck attracting the attention of the Justice Department after she reported widespread fraud at Countrywide, and the company’s new owner, Bank of America, fired her. In contrast, our client Tom Drake, who reported waste and abuse at the NSA to the Defense Department’s Inspector General, could not get the Criminal Division of the Justice Department to leave him alone until a federal judge and overwhelmingly negative media coverage finally forced prosecutors to withdraw their bogus spy charges.
Why is that? The Justice Department will send you away for decades if you report anything about wasted “national security” dollars. But should you actually lose a trillion or so mortgage dollars, federal prosecutors could not care less.
Well, you might say, Obama and the Congress fielded the Financial Crisis Inquiry Commission (FCIC), and that was government’s effort to find, at the very least, the causes of the banking implosion and the people behind it.
But it seems that this production, too, was stagecraft. Richard Bowen, the Citigroup whistleblower who testified before the FCIC, told us that the Commission’s staff instructed him to edit his testimony just before his appearance. The staff insisted he remove his submission to the Securities Exchange Commission (SEC) as well as references to other concerns that could be considered sensational. In fact, Bowen’s written testimony contracted from 29 pages (the staff originally told him he had a maximum of 30 pages) to 21 pages. At the Commission staff’s direction, Bowen’s final testimony excluded names and references to specific events, as well as concerns about the way in which Citi represented the value of its mortgage-backed securities to investors.
How’s that for anti-climactic? Not surprisingly, when the FCIC released its report, NY Times blogger Peter Henning wrote:
The commission’s various conclusions provide a plausible defense for almost any executive who might be accused of securities fraud or misleading investors: it was all the fault of uncontrollable market forces and regulatory laxity...
If the Justice Department or the Securities and Exchange Commission did decide to pursue cases against corporate executives for their conduct during the financial crisis, the charges will have to be narrowly tailored to allegations of very specific wrongdoing to avoid a defense that any problems were solely the result of broad market forces and accompanying regulatory failures.
This is an odd twist. According to the FCIC, everyone involved in lending and borrowing was vaguely culpable and therefore no one really was. Meanwhile, over on the national security front, it’s easy to pinpoint the prosecutable few: they’re the ones who asked embarrassing questions or visited the Inspector General.
And who, then, escaped prosecution in these two episodes? Well, the folks who profited in both worlds: NSA contractors whom the government paid billions for next to nothing and bank managers whom the government bailed out with hundreds of billions. For absolutely nothing.
Something is terribly wrong at the Justice Department.
Bea Edwards is Executive Director and International Director for the Government Accountability Project, the nation's leading whistleblower protection and advocacy organization.