There have been virtually no prosecutions to date for the near collapse of all our biggest banks and for the building of a residential mortgage morass. The comments on Gretchen Morgenson and Louise Story’s lengthy article in April 14th’s New York Times (“In Financial Crisis, No Prosecutions of Top Figures”) show our nation is divided along yet another line: those who aren’t surprised and those who are appalled.
The lack of prosecutions is appalling, and two reasons explain why it shouldn’t be surprising: political influence and the law. What was done was not that illegal. Congress makes the laws, and it is wholly beholden to the financial sector. Congressmen of both parties will do little to address the true causes of the financial crisis.
Anyone can do the math on donations from the financial sector to our Congressmen’s campaigns. It costs quite a bit to get elected, particularly to the U.S. Senate. The Center for Responsive Politics (OpenSecrets.org) tracks this information and presents it in useful ways. Their source is the Federal Election Commission, with which candidates must file detailed accounts of their campaign contributions.
All of our Congressional leadership, from both parties, receive substantial campaign donations from the financial sector, its Political Action Committees and individuals employed within it. In the last four elections for those in Congressional leadership positions down to Minority Whip, the average share of campaign contributions from the financial sector ranged from 10% to 25%. Contributions from the financial sector to those who chair or are ranking members of either the Senate Banking Committee or the House Financial Services Committee ranged from 22% of funds raised to over 40%. I’m not just talking about Republican Spencer Bachus, who now chairs the House Financial Services Committee and who received 38% of his campaign funds from the sector which he oversees. Democrat Barney Frank, now the Ranking Member of that committee, received 36% of his campaign funds from the sector. This is while he was pushing through what became the Dodd-Frank Bill, alleging to provide financial reform.
The Senate Banking Committee is little better, but still appalling. Democrat and Chairman Tim Johnson and Republican and Ranking Member Richard Shelby received 22% and 24% of their campaign contributions over the past four elections from the financial sector.
No bill can be voted on and passed by the full chambers without being first introduced from the committees. The average campaign contributions from the financial sector to the leadership of both chambers was 16% — about one out of every six or seven dollars raised. But the average contributions from the sector to the most senior members of both parties of the Senate Banking Committee and the House Financial Services Committee was 33% — one of every three dollars raised and twice the percentage for the leadership of the full chambers. It is no wonder that the senior executives of our largest banks have so little legal accountability and that there have been therefore so few prosecutions.
The judiciary wrestles with this issue, too. The U.S. District Court for the Southern District of New York deals with the major lawsuits against the biggest banks. The District Court posted some of the most notable legal opinions on its website. Judge Jed Rakoff expressed his exasperation with the Securities and Exchange Commission in the Commissions’s dealings during Bank of America’s acquisition of Merrill Lynch. A September 2009 opinion by Judge Shira Scheindlin in a case brought by a group of pension funds and other investors against Banc of America Securities and other parties illustrates how hard it is to prove a large institution didn’t do its job, even in the face of massive fraud.
The financial sector’s political experts are quite strategic in their campaign donations. They give more and more to those who write our laws in our Congress as the Congressmen gain seniority and therefore power. When will the newest members turn to the Dark Side? Is there any hope for real financial reform? That’s when the law says the CEOs of our largest financial institutions, which are all Too Big To Fail, will be held personally accountable for the risks assumed by their firms. Those are risks ultimately assumed by the American taxpayer.