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Financial Lemon of the Century Award Goes to DOJ

Federal Government

DOJ wins the inaugural award for picturing it's humiliating settlement with Morgan Stanley as a triumph. 

The first lemon is for the not-so-artful attempt at a slight of hand. How can a bank be held "appropriately accountable" for tens of billions of dollars in fraudulent mortgage sales? We can't imprison a bank or shame it. The bank is inherently incapable of being held "appropriately accountable" because that is a moral concept and a bank has no soul to damn.

The second lemon is for failing to admit that DOJ held no Morgan Stanley official "appropriately accountable" while claiming that its settlement did the opposite. Delery claims that DOJ "will not tolerate those who seek financial gain through deceptive or unfair means." The settlement proves the opposite, for DOJ "tolerated" Morgan Stanley's senior officers being made wealthy through leading a massive fraud scheme - with zero accountability imposed on those officers. Delery claims DOJ "will take appropriately aggressive action against financial institutions that knowingly engage" in fraud. A "financial institution," cannot "knowingly engage" in fraud except through vicarious liability for the actions of its officers. Delery is admitting that Morgan Stanley's officers "knowingly engage[d]" in fraud and became wealthy by doing so, but DOJ took no "action against" those officers, much less "aggressive" prosecutions.

The third lemon was awarded for Mizer's claim that DOJ's settlement with Morgan Stanley proves that "those who contributed to the financial crisis of 2008 cannot evade responsibility for their misconduct." There is the small discordant note that the settlement meant that those senior Morgan Stanley officers that led the epidemic of fraudulent sales of mortgage product that were one of the three great fraud epidemics that caused the financial crisis have, as with every DOJ settlement, entirely "evade[d] responsibility for their misconduct." DOJ, once more, refused to prosecute these elite frauds, did not require that they be fired, did not require them to give back their bonuses and other compensation that they received due to fraud, did not sue them, and did not even name them. Mizer then extended his lie by claiming that "the department will not hesitate to use [the law] to hold accountable those who violate the law." True, DOJ did not "hesitate" to apply the rule of law to elite bankers - they once again refused to do so. Morgan Stanley could only "violate the law" vicariously - through the actions of its officers. If Morgan Stanley violated the law DOJ could, and should, have prosecuted those officers.

The fourth lemon is awarded for unintentional honesty in the midst of trying to mislead the public.

Today's settlement is part of the ongoing efforts of President Obama's Financial Fraud Enforcement Task Force's RMBS Working Group, which has recovered billions of dollars arising from misconduct related to the financial crisis. The RMBS Working Group is a federal and state law enforcement effort focused on investigating fraud and abuse in the RMBS market that helped lead to the 2008 financial crisis.

We have agreement from DOJ, collectively through its pathetic settlements, that Bernie Sanders' charge is correct. Agencies of the United States, after investigation, have confirmed at virtually every enormous bank that the business plan was fraud. Moreover, DOJ admits that the fraud epidemics by the world's largest banks were leading causes of the financial crisis and the Great Recession. The Bank Whistleblowers United have confirmed both of these points.

Read closely the first sentence of the relevant portions of the paragraph quoted above. The paragraph, with minor variations, is a standard part of DOJ's press releases on the big bank settlements. It is a paragraph designed to brag about the accomplishments of the "RMBS Working Group" which was tasked with prosecuting a particular crime - "fraud" - in the RMBS market. Collectively, the settlements demonstrate that the fraudulent sale of mortgage product through false representations and warranties dominated this secondary markets. As the reader can see, DOJ is big into bragging and this is the key task force that they brag about.

So, which prosecutions of elite Wall Street bankers who led this fraud epidemic do they brag about? What prosecutions of non-elite Wall Street bank officers do they brag about? What prosecutions of non-elite non-Wall Street officers such as New Century's middle-level officers do they brad about? They cannot find a single prosecution to brag about. Instead, they are reduced to trying to brag about "billions of dollars" in fines paid not by the officers leading the frauds, but by the shareholders. We award our fourth lemon to this attempt to mislead the reader into believing that the greatest strategic failure to prosecute in modern DOJ history represents a triumph.

In the second column in this series we ask President Obama to end these humiliating failures to prosecute the senior executives leading the largest and most financially destructive criminal enterprises in the world by implementing our plan to restore the rule of law to Wall Street. We stress that he can do so without any new legislation or rules and we offer to help implement the plan. We urge the public to join in asking Obama to implement our plan.