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Too big to fail and too rich to jail

lady justiceIt has long been true that the rich and well-connected got better treatment from law enforcement and the justice system than the poor and powerless. But that brutal fact was usually hidden behind a façade that claimed that the system was impartial and fair. The image of the statue of a blindfolded Lady Justice holding evenly balanced scales (like the one on the right) is part of the architecture of the US Supreme Court building and is used to personify this idea that justice is dispensed without favor.

But now the US justice system seems to have entered a phase where they have decided that we don’t even need to bother to maintain this pretense and it is becoming openly acknowledged that we have two types of criminals, those who can be sent to prison and those who can’t, and this has little to do with the nature of the crime but with what class of people the perpetrator belongs to.

We saw this in the case of a 16-year old drunk driver who killed four people. He was not sent to jail but merely given probation. Why? because the judge bought the argument that the problem was that he was wealthy and thus had always got everything he wanted and therefore should be held to a lower stand of responsibility that other drunk teenagers who did not have all his privileges.

Then we had the case in which the “fabulously rich Delaware du Pont family heir was convicted of the fourth-degree rape of his 3-year-old daughter in 2009 — but he never spent a day in jail” because “the sentencing judge determined that Robert H. Richards IV “would not fare well” in prison.”

What happened is that as the American justice system started incarcerating large numbers of people for all manner of offenses, the prisons became overcrowded and dangerous warehouses with prisoners being treated inhumanely and with little regard for rehabilitation. The judge in the du Pont heir was right in his estimation of what Richards would face. Within the culture of prisons, child molesters reportedly are considered the lowest of the low and can expect harsh treatment at the hands of their fellow prisoners. But the solution is not to give rich people immunity from prison.

When it comes to financial crimes committed by the big banks and Wall Street investment houses, the justice systems seems to no longer even bother to try and put major white collar criminals, people who have caused untold hardship to millions of people while enriching themselves, in jail because prosecutors seem to think that these people are ‘not appropriate’ for prisons, which are dangerous places. As a result, the Justice Department seems proud to only levy fines on financial institutions and not ask for jail time. Since no individual goes to jail or is even fined and the banks can easily afford what seems to ordinary people like huge amounts, these same perpetrators feel safe to continue their practices.

Felix Salmon writes how the Securities and Exchange Commission actively colluded with the banks on prosecutions. In a case where Goldman Sachs was accused of widespread wrongdoing with its Collateral Debt Obligations, the bank was essentially calling the shots, deciding what was a reasonable fine and offering that amount in return for immunity on other frauds and the SEC misled the public by the way it described the settlement.

It’s quite impressive how quickly and accurately Goldman nailed the amount of money that it would have to pay the SEC to settle the case: when it took three months to come to the $550 million settlement, I for one assumed that Goldman had to be dragged kicking and screaming to that point. In fact, however, Goldman was happy to offer half a billion dollars right off the bat. The tough part of the negotiation was not over the Abacus fine — it was over the question of whether the SEC, with the Abacus prosecution successfully under its belt, would then go after Goldman for a dozen other deals which were functionally equivalent.

The answer was a clear no: Goldman might be equally culpable for 11 other deals, but the SEC quietly assured Goldman — but not the public at large — that none of those deals would result in any charges.

And with the Goldman deal now public knowledge, we can assume that the same nod-and-a-wink deal was struck with all the other one-and-only-one CDO bank prosecutions: Citigroup, JP Morgan, Merrill Lynch (which evidently included Bank of America), Mizuho Securities, Wachovia, Wells Fargo, UBS. Add them all up, and I wouldn’t be surprised if there are 100 unprosecuted CDO deals out there, all of whom had victims just as deserving as the ones who got paid out on the prosecuted deals. Basically, there’s a CDO lottery, and, thanks to the way in which the SEC cozied up to the big banks, the average CDO investor has a very small chance of having won it.

Matt Taibbi has a new book called The Divide that looks at this additional sign that we are now an openly oligarchic society in which not only do we declare that some institutions are too big to fail and must be rescued by the government however egregious the crimes that they commit, we also have a small class of people who are too rich to jail. He was interviewed on The Daily Show.

(This clip aired on April 7, 2014. To get suggestions on how to view clips of The Daily Show and The Colbert Report outside the US, please see this earlier post. If the videos autoplay, please see here for a diagnosis and possible solutions.)

Comments

  1. smrnda says

    Would not fare well in jail – who does? The real idea seems to be that rich people can’t be forced to brush shoulders with proles, no matter how vile their behavior.

    We have an aristocracy, great.

  2. brucegee1962 says

    The worst part is that the lack of people going to jail virtually guarantees that the whole thing will happen again.

    Sigh. Change was such a good slogan.

  3. doublereed says

    I see this as a reverberations of the vile War on Drugs. Where we grew our prisons to absurd and grotesque levels. This is costly and requires absurd federal and state resources to house and feed people. It eventually means that the law will be applied among class and race lines.

    This is why people saying that they’re “tough on crime” is racist. Because they aren’t tough on crime. This really just refers to being “tough on minorities” or “tough on the poor.” If people actually believed in the Rule of Law, they would point out that these bankers have done absurd aggregate damage to the country and its populace.

    They like to talk about deterrents, but apparently they don’t like use deterrents in instances like this where they would actually be effective.

  4. Lassi Hippeläinen says

    The SEC has to cover its back. Thanks to the revolving door recruitment much of SEC’s personnel has been working in the investment banks. If the SEC started prosecuting those crimes, they would shoot their own ass.

  5. sc_770d159609e0f8deaa72849e3731a29d says

    When it comes to financial crimes committed by the big banks and Wall Street investment houses, the justice systems seems to no longer even bother to try and put major white collar criminals, people who have caused untold hardship to millions of people while enriching themselves, in jail because prosecutors seem to think that these people are ‘not appropriate’ for prisons, which are dangerous places.

    These are probably the only crimes where imposition of the death penalty for deterrent effect would be justified. The people who commit these crimes calculate the chances of their getting caught and the penalties they would pay as carefully as they calculate the likely benefit of an investment. If the prospect of being hanged concentrates a man’s mind wonderfully, those are the people we want concentrating…

  6. Holms says

    We saw this in the case of a 16-year old drunk driver who killed four people. He was not sent to jail but merely given probation. Why? because the judge bought the argument that the problem was that he was wealthy and thus had always got everything he wanted and therefore should be held to a lower stand of responsibility that other drunk teenagers who did not have all his privileges.

    That case really pissed me off. No, being a pampered idiot doesn’t reduce your responsibility when driving, it reduces your competence. Everyone, no matter how proficient their driving, has the responsibility not to drive drunk , not to run people over and all the rest of it. This guy can argue that he is a dangerous idiot all he likes, he still failed to live up to the responsibility that we all have.

  7. Timothy says

    In addition to the vile War on Drugs, tremendous cuts throughout the American mental health system have reduced many prisons to de facto mental health institutions.

    Both to adults …

    http://www.businessweek.com/articles/2014-04-08/americas-mentally-ill-prisoners-outnumber-hospital-patients-tenfold

    … and to youth, with Ohio most likely being (sadly) representative of the treatment:

    http://www.motherjones.com/politics/2014/04/doj-solitary-confinement-mentally-ill-children-ohio

    … let alone the atrocious “Cash for Kids” scandal that rocked Pennsylvania:

    http://hereandnow.wbur.org/2013/01/15/kids-for-cash

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