There are two underlying structural problems with the new(ish) Federal task force on financial fraud. One, it is the policy of the administration to protect the banking system’s basic architecture, which means the compensation structure and the existing personnel who run these large institutions. Any real investigation into the financial collapse will inevitably lead to the collapse of this architecture. Thus, any real investigation will be impeded when it begins to conflict the basic policy framework of the Obama administration. And this framework is set by Obama. It’s what he believes in. He made this clear in his first State of the Union, when he said a priority of the administration was to ensure that “the major banks that Americans depend on have enough confidence and enough money to lend even in more difficult times.”
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Two, Obama personally believes in the legitimacy of the existing banking institutional framework and he strongly suspects that no crimes were committed. He has hired a raft of people – including Jack Lew, Tim Geithner, Eric Holder, Larry Summers, and so on and so forth – who agree, and has implemented policies such as Dodd-Frank that assume as much. His administration genuinely believes that mortgage fraud has been a top priority of theirs, as I showed this morning. These people aren’t stupid, they aren’t without principles, and they aren’t electorally driven. They areideologues. They really believe in a neoliberal political economy, where government throws money at the economy through private channels and private channels do with it whatever they think best. As Jonathan Alter, who is as close as you can get to the administration’s emotional spokesperson, explains in a column titled “For Obama, Pro-business Populism is no Oxymoron”:
The president, channeling John F. Kennedy’s famous inaugural address, framed it almost as a patriotism question: “Tonight, my message to business leaders is simple: Ask yourselves what you can do to bring jobs back to your country, and your country will do everything we can to help you succeed.”
The response to this is often: Who is the president to tell me where or how to run my business? But he’s not. He’s simply saying he’ll offer you tax advantages when your interests are aligned with the nation’s, and he won’t when they aren’t. (italics are mine)
The Obama administration’s posture is not passive because Obama is weak, it is passive because President Obama and his administration believe passivity towards business interests is the appropriate role of government. Schneiderman does not believe this, he wants to govern. And that’s why he wants this Federal task force, because the Federal government has more resources and tools (including legal authority, personnel, jurisdiction, and documents) that he needs to do a reasonable job explaining to the country through the use of the Justice system what happened in the multi-trillion theft and why. But he is coupled, as co-Chair, with several of these people who, as Matt Taibbi puts it, might “in an ideal world… be targets of their own committee’s investigation.” This makes it very difficult to consider how they could possibly work well together, with such misaligned interests.
There is a possible a collision coming, because the two parties have contradictory objectives. For now, the administration probably believes that this is a good political talking point, and nothing more. Perhaps the task force will go after a few mid-level people, or not, but it isn’t really going to cause any major problems for them. Schneiderman for his part has already said he’d walk away publicly if he is impeded in his investigation, as Dave Dayen noted in his terrific series of articles on the whole episode.
As just one example, Jonathan Weil keeps wryly pointing out that Vikram Pandit at Citigroup may be guilty of violating Sarbanes-Oxley.
In February 2008, two months into his job as CEO, Pandit certified in Citigroup’s 2007 annual report that the company’s internal controls were effective. Eight days before he did that, the U.S. Office of the Comptroller of the Currency had sent him a seven-page letter detailing all sorts of ways in which Citigroup’s controls were inadequate.
The statute seems pretty clear to me, though I’m not a lawyer. The criminal statute says that CEOs must certify financial statements of their companies, and “that information contained in the periodic report fairly presents, in all material respects, the financial condition and results of operations of the issuer”. If a CEO certifies false statements it’s a million dollar fine and up to 10 years in jail. If a CEO willfully certifies false statements it’s a five million dollar fine and up to 20 years in jail.
There are many details of the task force that are as of yet not public, so it is not clear to me that doing a case like this is possible. But it’s quite obvious that mega-bank officials and regulators lying about the perilous state of various financial institutions to the public was a key part of the crisis, and that accountability on this front is probably critical to restoring faith in the system. It would certainly be a big statement upfront if this is what this task force attempted to take on. Will it? That’s a very good question, and one I hope we get answers to, soon.