Diatribes of Jay

This is a blog of essays on public policy. It shuns ideology and applies facts, logic and math to economic, social and political problems. It has a subject-matter index, a list of recent posts, and permalinks at the ends of posts. Comments are moderated and may take time to appear. Note: Profile updated 4/7/12

22 May 2013

Can Justice do justice?


[For brief analysis of yesterday’s bad news from Iran, click here.]

Inscribed in stone on our Supreme Court building is a four-word credo: “equal justice under law.”

Those words capture the essence of our form of government. They meld the rule of law that is supposed to govern all of us with Thomas Jefferson’s ideal that we are all created equal.

Words in stone do not change. But people and cultures do. Time and chance happeneth to us all. So do laxity, timidity and corruption. This evening’s (repeated) feature of “Frontline” describes just how much.

The subject has nothing to do with Benghazi or IRS blunders. It’s much, much more important than that. It explains why not a single high-level Wall Street banker has ever been convicted for criminal conduct leading to the Crash of 2008.

I won’t spoil the program by reviewing it in detail. Every citizen should watch the whole thing, carefully, in doleful silence. But I will summarize the key facts that the program substantiates through interviews with live witnesses.

First, since the events leading up to the Crash of 2008, over a thousand small fry have gone to jail for the same type of mortgage fraud that led to the Crash. So far, not a single high Wall Street executive has.

Second, the banks that perpetrated this disaster on us (and the world) relied on contract “due diligence” labor to review loans to be packaged into mortgage-backed securities. Witnesses engaged in this occasional work said that many loan applications appeared fraudulent, but they were forbidden to use the word “fraud” and told to fund the loans.

Third, a whistleblower testified that, long before the Crash, he e-mailed four top executives of Citibank about massive noncompliance with the bank’s own credit standards. The noncompliance began at 60% and later reached over 80%. This man, Richard Bown, was hardly a peon. He was a senior vice president of Citibank, responsible for credit quality compliance. His e-mail was labeled “URGENT.”

Fourth, Former Treasury Secretary Robert Rubin, who was then Chairman of Citibank, was asked about this e-mail at a hearing. He said he thought he remembered it and and he thought he had forwarded it to someone for action, as if it involved a minor matter.

Fifth and finally, a man (if you can call him a man) named Lanny Breuer was in charge of the Justice Department’s Criminal Division from the outset of the Obama Administration until this March. He was supposed to be responsible for making criminal cases against the rogue bankers. But he brought none. Not a single indictment of a high-level Wall Street exec, in four years on the job.

“Why not?” you might ask. Well, Breuer himself says that white-collar criminal cases are hard to make. So he decided not to make them. But no less a witness than “superlawyer” David Boies opined that allegations in a recent civil complaint would, if proved beyond a reasonable doubt, suffice to show criminal fraud.

Other Frontline witnesses had different ideas. One says Breuer didn’t want to lose. (Many self-centered lawyers arrange their lives so that they can say they never lost a case. Maybe he’s one.) That of course means he wouldn’t take any difficult cases, no matter how much is at stake. It also means that he put his personal career above both his job description and the public welfare.

But Breuer later himself gave another, more plausible excuse. He said he worried that indicting those high and mighty bankers might upset their financial counterparties and bring down the economy. This worry, he said, kept him up at night.

So in the end, the main reason why no high-level rogue banker has ever been indicted boils down to the same reason why we bailed them all out, instead of their innocent victims. The bankers got to Breuer.

Not only did they convince him their banks were too big to fail. They convinced him that they personally were too big to prosecute. That’s just what every democracy needs: personal immunity from prosecution by reason of wealth and power. Let’s just call it “blackmail by the rich and famous.”

Just last week we remembered the Watergate scandal. In it, we ultimately proved that even our president was not above the law. But that was four decades ago. Now we won’t even indict bankers. Is that consistent with “equal justice under law”? I don’t think so.

But that’s not all. Since 2008, legions of whistleblowers, ashamed at their parts in destroying the world’s economy (and our own) have come forward. Massive civil cases have been filed. An amateur movie maker found whistleblowers galore and made an independent movie about them. Yet in all that time, the head of our Criminal Division of the Department of Justice came up with nothing.

I won’t even mention how Breuer presented himself. You have to see for yourself. Any solicitousness you might feel for how hard our nations’ top lawyers’ jobs are vanishes when you watch him.

He makes Uriah Heep look like a straight-talking hero. After watching him for just a few minutes, I wanted to take a shower. After watching the whole show, I could barely restrain myself from throwing a glass through my big screen.

How could an oily, unctuous, c.y.a. coward like this end up in charge of the criminal side of our Department of Justice for four years?

Criminal cases are indeed harder to prove than civil cases. But that doesn’t mean they shouldn’t be brought, even at a risk of losing. A prosecutor is not supposed to be a judge; I believe that’s called the “separation of powers.”

A good Criminal Division head would have spent the last four years investigating the hell out of all the plausible suspects. Now he or she would be reading mass indictments, just at the beginning of Obama’s second term. Even if half or more of them failed, the mere effort would constrain bankers’ rampant gambling and swindling for at least a decade. And juries would do the rest.

We are slowly losing our Republic, drop by drop. We are increasingly willing to give up our liberty for security in the face of terror. We spy on ourselves incessantly, forfeit our privacy, and allow ourselves to be treated like cattle on airlines—all because we lost less than 4,000 to terrorism. We lose more than eight times that number in traffic every year.

Now we refuse even to indict the high-level bankers that crashed the global economy, while prosecuting and jailing the small fry. Why? Apparently because we’re afraid of losing our less-than-perfect win record, or because we fear that the bankers’ self-serving propaganda might be right. We are becoming living proof of Jefferson’s observation: a nation that values security over liberty deserves neither. Our Greatest Generation, which is now passing from the scene, must be in despair, if not depression.

Whatever this is, it is not political or moral courage. And it is certainly not equal justice under law. It is a once-great nation in danger of losing its bearings and its soul. Meanwhile, bankers are hard at work diluting post-Crash regulation and erecting yet another financial house of cards, whose fall will shake the global economy again.

We can only hope that Breuer’s replacement will be more dynamic, less conscious of his or her record, and more focused on advancing our nation’s basic values. We need a new Eliot Spitzer, or we need to break up the big banks into pieces small enough to fail (and small enough to prosecute criminal executives).

Some Bad News from Tehran

Iran’s Guardian Council has barred Iran’s former president, Ayatollah Ali Akbar Hashemi Rafsanjani, from running for president of Iran again. If this decision stands, it is not good news.

You can get a good idea of who Rafsanjani is and what he stands for by perusing his own English Website. The Website’s mere existence is a signal of his modernity and international outlook. He is also an experienced businessman, perhaps the most powerful in Iran. If any single person can be considered a leader of Iran’s fractured and oppressed business community, it is he. He has been a power to reckon with in Iran’s national politics and business for at least a generation.

So what does the decision mean? It means that the battle lines have been drawn. The Supreme Leader won’t let go of power without a fight. And he probably doesn’t intend to have fair elections, at least with candidates who can win.

Does that mean the battle is over? Not hardly. The political battle has just begun.

The battle is highly unlikely to result in civil war. Iran is not like that. It works by mass meetings, private meetings, personal influence and intrigue. Nearly all the politics that matter in Iran lie below the surface. Iran is not like Syria; among many other differences Iran is much more ethnically homogeneous.

So what does this development mean for us? If it stands, it means that we are less likely than before to understand what is happening in this cycle of Iran’s elections. It also means that forces favoring the status quo are more likely to prevail.

For most outsiders Iran is a closed book. We won’t be able to read it until after the late-summer elections. So it is still, in my view, a bad idea to make threats, tighten sanctions, or start a war before the outcome of those elections becomes clear. Doing so, or supporting any candidate, would virtually insure a result we won’t like.

Footnote 1: Iran is unlikely ever to have a real civil war. Even its 1979 Islamic revolution was relatively bloodless. Estimates of deaths range from a low of 8,000 to a high of 70,000, although it’s unclear whether the higher figure includes all of the Shah’s 26-year rule. Out of a 1979 population of 34.5 million, that’s between 0.023 and 0.2 and percent. In comparison, our Civil War dead comprised between 2% and 2.4% of our 1860 population, and Russia’s 1917 revolution, by a median estimate, killed about 9 million of its 100 million 1917 population [Figure 1], or 9%.

Footnote 2: For a useful list of approved candidates, click here.

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