Despite his populist posturing, the president has failed to pin a single top finance exec on criminal charges since the economic collapse. Are the banks too big to jail—or is Washington’s revolving door to blame?
- Obama’s 2009 White House summit with finance titans, in which the president warned that only he was standing "between you and the pitchforks"
- Why, despite widespread outrage, financial-fraud prosecutions by the Department of Justice are at 20-year lows
- Attorney General Eric Holder’s lucrative ties to a top-tier law firm whose marquee clients include some of finance’s worst offenders
- How Obama’s trumpeted “task force” for investigating risky mortgage lenders—announced in this year’s State of the Union speech—is badly understaffed and has yet to produce any discernible progress
With the Occupy protesters resuming battle stations, and Mitt Romney in place as the presumptive Republican nominee, President Obama has begun to fashion his campaign as a crusade for the 99 percent--a fight against, as one Obama ad puts it, "a guy who had a Swiss bank account." Casting Romney as a plutocrat will be easy enough. But the president's claim as avenging populist may prove trickier, given his own deeply complicated, even conflicted, relationship with Big Finance.
Obama came into office vowing to end business as usual, and, in the gray post-crash dawn of 2009, nowhere did a reckoning with justice seem more due than in the financial sector. The public was shaken, and angry, and Wall Street seemed oblivious to its own culpability, defending extravagant pay bonuses even while accepting a taxpayer bailout. Obama channeled this anger, and employed its rhetoric, blaming the worldwide economic collapse on "the reckless speculation of bankers." Two months into his presidency, Obama summoned the titans of finance to the White House, where he told them, "My administration is the only thing between you and the pitchforks."
The bankers may have found the president's tone unsettling. Candidate Obama had been their guy, accepting vast amounts of Wall Street campaign money for his victories over Hillary Clinton and John McCain (Goldman Sachs executives ponied up $1 million, more than any other private source of funding in 2008). Obama far outraised his Republican rival, John McCain, on Wall Street--around $16 million to $9 million. As it turned out, Obama apparently actually meant what he said at that White House meeting--his administration effectively would stand between Big Finance and anything like a severe accounting. To the dismay of many of Obama's supporters, nearly four years after the disaster, there has not been a single criminal charge filed by the federal government against any top executive of the elite financial institutions.
"It's perplexing at best," says Phil Angelides, the Democratic former California treasurer who chaired the bipartisan Financial Crisis Inquiry Commission. "It's deeply troubling at worst."
Strikingly, federal prosecutions overall have risen sharply under Obama, increasing dramatically in such areas as civil rights and health-care fraud. But according to the Transactional Records Access Clearinghouse, a data-gathering organization at Syracuse University, financial-fraud prosecutions by the Department of Justice are at 20-year lows. They're down 39 percent since 2003, when fraud at Enron and WorldCom led to a series of prosecutions, and are just one third of what they were during the Clinton administration. (The Justice Department says the numbers would be higher if new categories of crime were counted.)
"There hasn't been any serious investigation of any of the large financial entities by the Justice Department, which includes the FBI," says William Black, an associate professor of economics and law at the University of Missouri, Kansas City, who, as a government regulator in the 1980s, helped clean up the S&L mess. Black, who is a Democrat, notes that the feds dealt with the S&L crisis with harsh justice, bringing more than a thousand prosecutions, and securing a 90 percent conviction rate. The difference between the government's response to the two crises, Black says, is a matter of will, and priorities. "You need heads on the pike," he says. "The first President Bush's orders were to get the most prominent, nastiest frauds, and put their heads on pikes as a demonstration that there's a new sheriff in town."
Obama delivered heated rhetoric, but his actions signaled different priorities. Had Obama wanted to strike real fear in the hearts of bankers, he might have appointed former special prosecutor Patrick Fitzgerald or some other fire-breather as his attorney general. Instead, he chose Eric Holder, a former Clinton Justice official who, after a career in government, joined the Washington office of Covington & Burling, a top-tier law firm with an elite white-collar defense unit. The move to Covington, and back to Justice, is an example of Washington's revolving-door ritual, which, for Holder, has been lucrative--he pulled in $2.1 million as a Covington partner in 2008, and $2.5 million (including deferred compensation) when he left the firm in 2009.
Putting a Covington partner--he spent nearly a decade at the firm--in charge of Justice may have sent a signal to the financial community, whose marquee names are Covington clients. Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America, Wells Fargo, and Deutsche Bank are among the institutions that pay for Covington's legal advice, some of it relating to matters before the Department of Justice. But Holder's was not the only face at Justice familiar to Covington clients. Lanny Breuer, who had co-chaired the white-collar defense unit at Covington with Holder, was chosen to head the criminal division at Obama's Justice. Two other Covington lawyers followed Holder into top positions, and Holder's principal deputy, James Cole, was recruited from Bryan Cave LLP, another white-shoe firm with A-list finance clients.