There have been a spate of recent cases involving fraud at the major banks and this may give the impression that the government is finally cracking down on them. Matt Taibbi argues that we need to look very carefully at the outcomes of these prosecutions to see if they are really serious.
But to me, these investigations will be meaningless unless one of two things happens, once they reach the inevitable stage of concluding painstakingly-crafted settlements with the inevitable teams of high-priced lawyers for the offending firms:
1) Someone goes to jail.
2) The company is ordered to break itself up into smaller pieces.
As to point one, here’s the thing. If criminal laws were violated, then the government certainly has discretion to exercise mercy and seek non-criminal sanctions against the individuals responsible. But they can really only do that and not be total hypocrites if they also simultaneously implement leniency programs for ordinary street criminals at the same time.
Just yesterday, for instance, a federal judge in Mississippi handed down a six-month sentence to a man and ordered him to pay $8,282 in restitution for food stamp fraud – one Stanley Jones apparently lied in an application about whether or not anyone in his household had ever been convicted of a felony drug charge when he applied for food stamps.
Stanley Jones is going to do six months in jail for fraud in a case brought by the same Justice Department now sniffing around Chase and Bank of America. I would be shocked if $8,282 didn’t represent the entire amount of value “taken” via Jones’s fraud. I spent a lot of time with people targeted for welfare fraud for my upcoming book, The Divide, and the state never settles for anything less than every last dollar in these cases. Incidentally, you can find cases like this pretty much every day in every state in the country. Guaranteed, someone somewhere in America right now is drawing jail time for some form of welfare fraud.
Meanwhile, S.E.C. target Fab Tourre – the Goldman exec who joked about selling bad bonds to “widows and orphans” – will not do a day in jail for his part in a fraud that caused two banks in Europe to lose over a billion dollars. And Fab’s restitution will range from $30,000 to $780,000, depending upon how much judge Katherine Forrest decides to ding him for each of his six counts of civil fraud. (It will be very interesting to see where she lands on that decision). Fab’s bank, Goldman, Sachs, has already settled for $550 million for the same case, which is a lot of money, but again less than the total amount of the damage. And nobody went to jail.
That won’t happen, however. Almost guaranteed, these investigations will end with huge cash settlements. We’ll keep the jails filled with food-stamp thieves, while the bank execs who knowingly hawked doomed mortgage bonds to “widows and orphans” all over the world will almost certainly get off. At worst, their shareholders will cough up another billion or two in settlement money.
But at present the big banks do not even have to admit wrongdoing, even as they settle cases by paying fines. But with ordinary people, they often have to do all three: admit wrongdoing, pay fines, and go to jail, even if the amounts involved do not even amount to what the bankers spend on their suits. That is the two-tiered justice system that we have.