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Reply #8: NPR - Why Prosecutors Don't Go After Wall Street (Our Justice Dept.!) [View All]

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MinM Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Dec-06-11 09:13 AM
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8. NPR - Why Prosecutors Don't Go After Wall Street (Our Justice Dept.!)
Edited on Tue Dec-06-11 09:42 AM by MinM

In 2010, Fabrice Tourre, an executive director at Goldman Sachs, became the only person at Goldman Sachs and across Wall Street sued by the SEC for his role in a mortgage securities deal during the housing bubble.
When the energy giant Enron collapsed 10 years ago, top executives of the company faced criminal prosecution, and many served lengthy prison terms. In the savings and loan scandal of the 1980s, hundreds of bankers went to jail.

But the financial meltdown of 2008 has yielded a very different outcome. In April, Louise Story co-wrote an article in the New York Times, which began: It is a question asked repeatedly across America: Why in the aftermath of a financial mess that generated hundreds of billions in losses have no high-profile participants in the disaster been prosecuted? Answering such a question, the equivalent of determining why a dog did not bark, is anything but simple.

We've invited Louise Story here today to try and answer that question - why the dog didn't bark. Louise Story joined the New York Times in 2006. She covers Wall Street and finance and was a finalist for the 2009 Pulitzer Prize in Public Service...

In this horrific financial collapse, have there been criminal prosecutions?

Ms. LOUISE STORY (Reporter, New York Times): There really have been very few criminal prosecutions, and there has been no criminal prosecution of a senior executive from a major bank or financial company related to the financial crisis.

DAVIES: And what kind of other regulatory actions have occurred?

Ms. STORY: Well, you know, the Securities and Exchange Commission has brought some civil cases, though very few of them have named individuals who worked at the companies.

One case that did name an individual centered on Angelo Mozilo. You know, he was the chief executive of Countrywide, that giant mortgage company, and that case contains these emails where he was writing to other executives that he knew the mortgages that Countrywide was issuing were very toxic.

But he wasn't telling Countrywide investors in that, and he wasn't telling investors who were buying Countrywide's mortgage bonds. At the same time, he also was selling some of his own stock in Countrywide.

It's those sorts of accusations that have led some people to think there might have been a criminal case against Angelo Mozilo. However, it's been reported the Department of Justice is not pursuing one against Mozilo.

DAVIES: All right, I want to get to why there weren't more prosecutions, but let me just ask first, You know, some of these civil cases have resulted in settlements in the hundreds of millions, and some might look and say, well, that's a pretty painful punishment to inflict on these companies. What's your sense? How much of a corrective action are these civil suits, in which, you know, they get a whole lot of money?

Ms. STORY: Well, so for instance, the settlement with Goldman Sachs that the SEC entered into last summer was a pretty large one, $550 million, and you're right, some people would say that's a big punishment, $550 million.

But then, you know, other people would say: But Goldman Sachs makes that in about three weeks of trading. And remember these penalties are paid for by Goldman Sachs, ultimately by Goldman shareholders, not by the executives or the traders or the salespeople that actually individually played a role in what happened.

DAVIES: Right, and Lloyd Blankfein, who was the head of Goldman, who has been there since 2006, remains at the helm, right?

Ms. STORY: They're there, and they're also getting very large bonuses.

DAVIES: When there are these settlements, who gets the money?

Ms. STORY: So the settlements are set up differently. Sometimes, the money goes to the Securities and Exchange Commission. Often, the money goes to whoever was the victim of the crime in a sort of restitution. Sometimes it even goes to the shareholders of the company that committed the crime.

DAVIES: Now, let's take one case. You recently wrote about a suit brought by the U.S. Attorney's Office in New York against Deutsche Bank. What are they accused of?

Ms. STORY: Well, so that was an interesting case, and it's still ongoing, but it's a case that involves the FHA Fund, which is a government fund that backs mortgages, kind of like Fannie and Freddie do. And what they found is that a unit the Deutsche Bank had acquired had been committing mortgage fraud, had been lying about the quality of these loans.

So that's certainly a case that you could say: Yeah, that may be something that's related to the financial crisis, lying about the quality of these loans that the government is backing and ultimately the taxpayer will have to pay for losses on. But again, there was no person named in this case. They only named Deutsche Bank, and they did not single out any of the individuals who took these actions.

And when you read the case, you read about all these different people making these lies. They're not named. And you wonder, well, why aren't they held accountable? ...

DAVIES: You've written that the FBI was, I believe, in 2008, about to get more active and assign more resources to look into mortgage securities fraud. What happened?

Ms. STORY: Well, you know, the FBI was pretty early in identifying the mortgage fraud problem. There was someone there in charge of their criminal division, Chris Swecker, who went on to TV as far back in 2005 and said mortgage fraud is a major problem. And by 2008, their criminal division did a big study has identified about two dozen parts of the country where they wanted to shift resources to look at mortgage and financial fraud. And I talked with the head of the criminal division from that period Ken Kaiser. He told me that they were going to look not only at mortgage fraud among consumers, but also at the role of the major financial companies, all the way out the mortgage pipeline. And they sent out a memo to reallocate resources. After they sent out the memo to all of their field offices, there was a call that came in from the Department of Justice telling them to rescind the memo...

Let's talk about one of these cases that's gotten a lot attention. This is the young guy at Goldman Sachs, Fabrice Tourre...

Ms. STORY: Yeah.

DAVE DAVIES: Has the nickname Fabulous Fab. Tell us what he is accused of.

Ms. STORY: Fabrice Tourre was a relatively junior salesman at Goldman Sachs in the unit that marketed what turned out to be some of the most toxic mortgage-securities they created. And when the case was brought against Goldman Sachs by the SEC last year, he was the only individual accused of wrongdoing. And he is accused of not telling investors who would buy these securities that they weren't designed in part by another investor, John Paulson. He's a prominent hedge fund manager, who was betting against these very same securities. So John Paulson was negative on housing and he wanted these securities to do poorly. He was betting against them. But yet he got to help design them. And the SEC says that Fabrice and Goldman Sachs should have told the investors who were positively betting on those securities that that other person who was negative on them had had an input on how they were created.

DAVIES: Now one of the things that's interesting about the Fabrice Tourre case is that you've written that a lot of folks believe there were plenty of people at Goldman who knew about and were involved in this activity but he just happened to be the one who had I guess that the most indiscreet females, right?

Ms. STORY: Absolutely. I mean as far back as 2009, when my colleague Gretchen Morgenson and I were writing about these Abacus securities, we were told by a lot of current and former Goldman people that there were a large team of people involved. And, in fact, since then many Goldman employees have told us they were so surprised that only Fabrice was named. Fabrice, of course, himself thinks it's a little odd he was the only one named. And we recently obtained the replies - the private reply that Fabrice sent to the SEC trying to convince them that he should not be the only one named. And in that Wells reply, he laid out all kinds of people, about six or seven other people who were just as involved in all of the activities as he was.

DAVIES: And one of the fascinating pieces of this story is that you got that via a discarded laptop. Is this right?

Ms. STORY: That's right. So Fabrice had thrown out his laptop in 2006 in a garbage area and it was found by someone who gave it to a friend and that friend eventually realized last year that she had Fabrice's old laptop because his name was in the media. And so she gave us a copy of some of the materials on the laptop and what we found to be newsworthy and interesting was this private reply that Fabrice and his lawyers had filed to the SEC trying to convince them that there were many other parties at Goldman who were equally involved in the deal at the center of that case...

Ms. STORY: Well, Congress had a lot of power, particularly in the fall of 2008 when they bailed out the banks, they could have demanded practically anything in exchange for that money but they actually demanded almost nothing. And that was because Hank Paulson, who was the Treasury secretary at that time, was afraid the banks wouldn't take the money if there were strings attached. But in retrospect, a lot of financial experts say now it's clear the banks were so at risk.

Even Goldman Sachs was borrowing money from the Federal Reserve through a private, kind of secret transaction that only came out recently. And so these financial experts say it's very likely the banks would've taken money with whatever strings came attached. And that might have been a way to hold the industry accountable, would have been to really impose major changes back then when they were begging on the taxpayers' door...

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