Addressing the collateral consequences of punishment has long bedeviled the Solomons of justice. The poorly behaving student is expelled, but then is denied access to alternative schooling. Washington metes out penalties for financial misdeeds, but concern for those collateral consequences has in many cases led to light punishment.
The U.S. Department of Justice’s Attorney General Eric Holder confided that HSBC Bank USA, found guilty of laundering $200 trillion worth of money for tyrants, terrorists and narco-traffickers, was so large that holding it fully accountable might jeopardize the economy. The reasoning is similar to that used justify bailing out the “too big to fail” banks that caused the economic collapse. This led to the epithet: too big to jail (TBTJ.)
The TBTJ problem has infected other regulators. Corporate violations announced by the Department of Justice are supposed to trigger mandatory penalties when the same entity is overseen by other agencies, such as the Securities and Exchange Commission (SEC). For example, the SEC deems financial firms that break the law “bad actors,” which disqualifies them from certain activities.
One disqualification prevents financial firms from selling private securities for clients companies. These private securities are sold to larger, more sophisticated investors. Qualifying private securities offerings receive less SEC scrutiny than offerings to the general public. Excluding bad actors from selling these securities serves two purposes: It protects investors from scheming sales firms, and it acts as a deterrent to the violation of laws.
The congressional leaders who negotiated $1.1 trillion federal spending bill – dubbed the “CRomnibus” – must not have known they were in for a fight.
But when Public Citizen and other public interest allies got hold of the 1,600-page bill and saw that it contained a bevy of atrocious policy riders that had nothing to do with funding the government, the fight was coming.
The take-it-or-leave-it budget – including the poison pill provisions that Public Citizen opposed – did ultimately pass. The fight for its passage is instructive for how public interest advocates can wield power in the coming years, even as majorities in Congress seem determined to deliver a return on Corporate America’s Citizens United-enabled election investments.
The worst that could have happened would have been if the giveaways to corporations and the super rich had been accepted without a fight.
Thankfully, that’s not what happened.
We called on grassroots activists like you to act – to email and call your members of Congress – and you acted.
Tens of thousands of outraged citizens made it known that they would not accept a budget bill that allows millionaires and billionaires to have more influence in our elections and that puts taxpayers on the hook for Wall Street’s recklessness.
And then – hearing the outrage of tens of thousands of constituents across the country – principled members of Congress (of both major parties) fought the bipartisan backroom deal.
We’ve just seen the worst that Washington has to offer with the “cromnibus” government spending bill passed by the U.S. House of Representatives last night.
Instead of Congress passing a clean funding bill along lines that were previously agreed to and had bipartisan acceptance, Big Business exercised its insider influence and took advantage of an artificially rushed and secretive process to cut deals to enhance the political influence of the super-rich, put taxpayers on the hook – again – for Wall Street recklessness and make our roads less safe.
Moneyed interests maneuvered to eviscerate campaign spending rules, so that a super-rich couple may now contribute up to $3 million to a national political party in a single (two-year) election cycle. It’s a certainty that this move will be followed up by calls to “level the playing field” and permit the same monstrous contributions to candidates and political committees.
Wall Street called on its friends to include a Citigroup-drafted provision that would roll back a key Dodd-Frank measure that was designed to prevent Big Banks from using taxpayer-insured money to bet in the derivatives markets. With the top four banks responsible for 93 percent of derivatives activities in the United States, there is zero question about which entities will benefit. Nor who will pay; when the next financial crisis comes – as it will, as certainly as the calendar changes – taxpayers will be forced to pay for Wall Street gambling on derivatives.
At the behest of the trucking industry, U.S. Sen. Susan Collins included in the spending bill a provision to override rules to reduce truck driver fatigue, which risks the lives of truckers and other drivers.
These are only some of the known giveaways in the spending bill. It will probably take many weeks, or longer, before all of the industry deals are discovered.
As serious and troubling as are these measures, there is reason to fear worse is to come. Even though it opposed many of these harmful provisions, the White House pushed for approval of the overall spending deal, which had to overcome substantial opposition from members of Congress in both parties. If this is the kind of “bipartisanship” we’re going to see in the coming two years, the country is facing dire prospects indeed.
Bankers committed massive fraud leading to the financial crash of 2008, which then caused cataclysmic job loss, foreclosures and more than a $12 trillion drain on the economy. Where were the law enforcers? Bankers captured them, metaphorically.
More than 10,000 member of Public Citizen petitioned Congress to hold hearings on regulatory capture following the September release of tapes made by a regulator named Carmen Segarra. She resisted following the instructions of apparently captured regulators who were her supervisors, and was fired for it. On Nov. 21, a Senate banking subcommittee will open those hearings. New York Federal Reserve Bank President William Dudley will testify. Segarra worked as an examiner for his agency.
Here are a few questions
Q. According to Carmen Segarra, she was fired for trying to do her job. She was told to tone down her criticism of banks, but declined. How many examiners are terminated each year by the New York Fed? Former counsel to the Financial Crisis Inquiry Commission Bart Dzivi said Dianne Dobbeck, one of the most senior supervisors at the New York Fed, is “completely the wrong type” of person for the job. Is an examiner ever terminated for failing to detect a problem with a bank early enough? Does the New York Fed have a system to reward diligent examiners?
Q. The Segarra tapes cover an 8 month period three years after the crisis. If the crisis itself constituted a “teachable moment,” then must we assume that the problem of regulatory capture is only getting worse?