Such shameful conduct, which law professors told Bloomberg is not illegal, is becoming increasingly typical. We know, for example, that Paulson held a secret meeting with the Goldman Sachs board in a Moscow hotel in June 2008 that, again, didn’t match his public statements. These are just the meetings we know about.
“You just never ever do that as a government regulator — transmit nonpublic market information to market participants,” William Black, a former general counsel at the Federal Home Loan Bank of San Francisco, told Bloomberg Markets Magazine. But Americans have learned by now: Never say “never ever.”
We also recently learned the details of the Federal Reserve’s $7.77 trillion bank bailout, which the banks that benefited and the Fed have spent years trying to keep secret. It turns out that trillions of dollars were lent to faltering banks at rates far below market value, allowing those institutions to turn a combined $13 billion profit on the deal. “This was perhaps the single most massive allocation of capital from public to private hands in our history,” wrote former New York governor and attorney general Eliot Spitzer, “and nobody was told.”
The problem isn’t just that this was done in secret; it was that those rates were only available to banks, not average Americans, millions of whom were desperate for a chance to reduce the interest on their own debt. The message — that nearly unlimited sums were available to financial institutions, but not the American people — is not lost on many, as support for Occupy Wall Street and the 99 percent movement so clearly reveals.
In all of this, there is no sense of accountability or responsibility. We don’t just see a pattern of duplicity; we see a pattern of banks and bank officials systematically shielded from negative consequences of any kind. And often, it’s the government itself doing the shielding. The Securities and Exchange Commission and Citigroup, for example, have been negotiating a settlement over allegations that Citigroup defrauded investors through the sale of toxic securities. The SEC proposed the bank pay just $285 million in settlement (by comparison, Citigroup had about $21 billion in revenue in the last quarter alone). In exchange, the bank wouldn’t have to admit fault and would be protected from investors lawsuits. That’s an awfully cheap price for flagrantly conducting business outside of the law.
Thankfully, the federal judge overseeing the case rejected the settlement outright, saying the price tag didn’t come close to matching the alleged wrongdoing and that the public deserved to know what happened. “In much of the world,” wrote Judge Jed Rakoff, “propaganda reigns, and truth is confined to secretive, fearful whispers. But the SEC, of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges.”
The SEC, for its part, didn’t like Rakoff’s ruling, complaining that the steps he called for would “divert resources away from the investigation of other frauds.”What, one wonders, is the point of investigating other frauds, if each is met with a cheap fine and a get-out-of-jail free card?
This is as clear a picture of 2011 America as it is an ugly one — a system that works for the wealthy, the powerful and the connected but no one else. And while some of these events took place several years ago, not nearly enough has changed since.
And so we need a serious effort. We need not just to set tougher rules for Wall Street (something the Dodd-Frank bill only went part way in doing) but to make sure those who patrol that particular street take their jobs seriously. Those responsible for the economic mess will never be held accountable if we continue to define accountability as agreeing to pathetically small fines or paying back low-interest loans on time. Accountability should mean harsher penalties, including jail time, and a greater obligation to make the injured whole again.
Occupy Wall Street and the 99 percent movement erupted because Americans had the gut sense that financial institutions got off easy; now we know that gut sense was right. Justice has not been done, but it must be, before the next crisis — not just to prevent more turmoil but to prove to ordinary people that the government still works for them.