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Mr. President, Why Haven’t There Been Criminal Investigations of Wall Street Elites?

One plausible explanation for the refusal of the Obama administration to prosecute Wall Street Elites is that prosecutors are influenced by social class concerns. This explanation is mentioned in a recent paper by Mary Kreiner Ramirez of the Washburn University School of Law, Criminal Affirmance: Going Beyond the Deterrence Paradigm to Examine the Social Meaning Expressed by Exercising Discretion to Decline Prosecution of Elite Crime.

Professor Ramirez asks what happens when you don’t prosecute a known crime?

…[O]ne casualty of the decision not to pursue justice in the face of a crime, is the message that “crime doesn’t pay.” A minor message, perhaps, in minor one crimes; however, if the crime is costs billions of dollars or more, or involves abuse of power, the more likely message is one of to both the wrongdoer and the rest of us, that is one of “affirmance”: crime does pay.

Professor Ramirez discusses the reasons prosecutors might exercise their discretion to refuse to hold certain people accountable for their crimes, including “… other more pressing cases, lack of resources, lack of credibility of sources, discouragement, bad publicity, or simply lack of motivation…”. In footnote 41, she puts this from Stephen Holmes*.

In general, individuals who are plugged into especially powerful networks receive considerable advantages through the legal system administered by members of privileged networks, who went to the same universities, belong to the same congregations and clubs, vacation in the same locales, and so forth. The same cannot be said for their socially marginalized or dispossessed cocitizens. Well-connected insiders usually receive more indulgent treatment than poorly connected outsiders, even in the case of undeniable lawbreaking. The effect of this skewed distribution of leniency and severity on legal liability of government malefactors goes without saying.

So that gives us two related explanations: what the banksters did was just fine; and they are like us and we aren’t criminals, so it was ok, whatever the technical requirements of the law might be.

The Final Report of the Financial Crisis Inquiry Commission lays out a simple legal theory for prosecution of Wall Street. Regulation AB of the Securities Exchange Commission requires the seller of real estate mortgage-backed securities to state the underwriting guidelines used to evaluate the mortgage loans packed into the RMBS. The Final Report says that 16% or more of the loans in deals examined by one due diligence company did not meet those weak guidelines. That information is not disclosed by any RMBS seller. It is material, in that buyers would not purchase the securities if they had known that a substantial portion of the loans in the portfolio did not meet the weak guidelines stated by the sellers.

It is a violation of securities laws to make a flat statement, and then not make additional statements necessary to make the statements not misleading. The statement that specific underwriting guidelines were applied carries the implication that the loans in the portfolio met those guidelines. Omission of the qualifying statement “but the loans don’t meet those guidelines” can easily be seen as a crime.

It doesn’t require a lot of work to put this together. In a nutshell, you read the due diligence report, find the RMBSs with the bad loans, and indict the people who signed off on the offering materials, including the lawyers. They all should have been aware of the due diligence report. They lied to purchasers. Why is that not a crime? And if they want to lay the blame on their higher-ups, that is why we have plea bargains.

The banksters have their shills out explaining to every willing ear in the business press that these cases are hard, too hard, and responsibility is too broadly distributed across the corporate entity and all of us citizens for any one person to be held liable. It is shocking to see the likes of Floyd Norris, Joe Nocera and Andrew Leonard supporting the refusal of Eric Holder, Preet Bharara, Jenny Durkhan, and André Birrotte, Jr. to indict anyone.

That kind of high-level signaling says to me that this is preferential treatment of the elites. After all, there has been plenty of time to investigate, and plenty of time to work through the plea process to reach the higher-ups. The only explanation is class-based refusal to hold the elites accountable. It makes perfect sense to ask this question of a President trying to raise hundreds of millions from corporate elites for his re-election.

It is time for the President and the Attorney General to answer to the public: why have you not investigated? Do you think there were no crimes? And how could you know since you refuse to investigate and your Treasury Secretary is known to have discouraged state action?

Which one of those elite reporters who are invited to press conferences will ask Obama for an alternative
explanation to preferential treatment of the financial elites?
*The Spider’s Web: How Government Lawbreakers Routinely Elude the Law, in When Governments Break The Law: The Rule Of Law And The Prosecution Of The Bush Administration 121, 130-35 (Austin Sarat & Nasser Hussain eds. 2010

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