In this past Sunday’s New York Times, Gretchen Morgenson set out the lesson learned from Greg Smith’s public resignation from Goldman Sachs on March 14.
“Even now, after all we’ve been through, something is still wrong with Wall Street.”
In going public as he resigned from Goldman, Smith denounced a banking culture in which clients are seen as “muppets” who will invest in anything Goldman pumps up for them. He made clear that the Wall Street self-dealing and greed that crashed the economy in 2008 – he did not even mention fraud – remain unrestrained as we finally pull out of the resulting Great Recession.
If you think about it, this isn’t surprising. After all, there weren’t any criminal consequences for fleecing muppets, and in civil suits, the banks’ shareholders pay out, not the delinquent bankers. So why shouldn’t the Wall Street gang just keep on going? Why change the rules when you’re winning?
Smith was right to go to the press as he quit Goldman Sachs because the people who should address these things – the company’s management, for example – are part of the problem, as are the regulators and law enforcement – the SEC and Department of Justice.
At GAP, we’re documenting what whistleblowers Eileen Foster of Countrywide/Bank of America andRichard Bowen of Citigroup told internal investigators, the SEC and the bipartisan Financial Crisis Inquiry Commission (FCIC). In testimony, they both pretty well nailed it, complete with e-mails, reports and memos. The lenders and investment banks sold crappy mortgages to customers and clients. Then, when the crap backed up in the financial pipelines, the government/taxpayers bailed them out with hundreds of billions of dollars.
But the Justice Department did nothing.
When the FCIC investigated, presumably on behalf of the now deeply indebted public, we heard that the Commission’s report laid the groundwork for prosecutions. But it’s well over a year now, and still nothing. Ultimately, we learned from the FCIC that the cause of the crisis was lax regulation and an atmosphere of risk-taking. Banal conclusions like the following from the report explained the whole sorry mess:
We conclude a combination of excessive borrowing, risky investments, and lack of transparency put the financial system on a collision course with crisis.
And from apologist pundits like Robert Lowenthal of Bloomberg Businessweek we learned that we were all responsible: there were no prosecutions because “risk-taking and stupidity aren’t criminal.”
But actually they are. If you persuade Miss Piggy to take stupid risks by telling her she’s going to make a trough-load of money when you actually know that she’s about to lose her pigtail, that’s a crime.
So Smith went public, the way whistleblowers do when their supervisors fail them, internal controls are broken, and regulators are bought off or incompetent. Plus law enforcement has apparently been too busy to pay attention. The DOJ had bigger fish to fry. Like this one from the Department’s depressing website:
Jeffery K. Armstrong, 52, of South Riding, Va., was sentenced today to 18 months in prison for obtaining more than $100,000 in salary payments by fraudulently holding concurrent jobs at the United Nations (U.N.) and the National Labor Relations Board (NLRB).
Clearly, this was a major bust; Assistant Attorney General Lanny A. Breuer, Chief of the Criminal Division, announced the sentence himself.
When confronted with the lack of prosecutions in the wake of the financial fraud perpetrated by the Bankers gang, however, Breuer told Steve Kroft of 60 Minutes
I get it. I find the excessive risk taking to be offensive. I find the greed that was manifested by certain people to be very upsetting. But because I may have an emotional reaction and I may personally share the same frustration, that in and of itself doesn’t mean we bring a criminal case.”
Oh, okay, we get it now too. We’re just too emotional. We lack the cold-eyed focus of a professional puppet like Breuer, who knows a real fraud, like the greedy Mr. Armstrong, when he sees one.
I don’t know how you feel, but I think Breuer should be careful with his remarks about who is too upset and emotional. He could be sorry he said that publicly because that’s exactly the sort of thing Kermit would say to Miss Piggy just before she clobbered him.
Bea Edwards is Executive Director and International Director for the Government Accountability Project, the nation’s leading whistleblower protection and advocacy organization.