Sunday, September 28, 2014

Holder Blocked for Wall Street

The perpetrators of the financial crisis will not be held to account, according to a Bloomberg editorial.

Attorney General Eric Holder, who plans to step down after more than five years in office, has efforts and achievements to be proud of, no doubt, but will probably be remembered above all for something he didn't do: prosecute top executives for their role in the 2008 financial crisis. 
Holder refused to prosecute top executives and boards of directors because prior prosecutions resulted in thousands of people losing their jobs and retirement, aka Enron/Arthur Anderson.

The frame being sold to the public is:  Had any of these leaders, whose greed and avarice caused the Fall 2008 financial implosion, been personally held accountable companies would've failed and legions of people become unemployed.

This ignores the reasons Enron and Arthur Anderson failed.  Enron was a literal house of cards.  It took one pillar to fail and the whole contraption collapsed.  Arthur Anderson, like Enron's lawyers, looked the other way, over and over again.  It trashed its reputation which is what matters for a public accounting firm. 

A corporate attorney shared with me recently that he'd had his Enron moment.  His CEO told him what he wanted to do.  The lawyer told him it was illegal, thinking the CEO would listen to his expert opinion, even seek his counsel to move forward in a law abiding manner.  The CEO ignored his legal advice, doing what he wanted to do. 

This corporate attorney knew the easiest thing to do would be to go along, stay quiet, not rustle any feathers.  He said he had to get up and look at his reflection every morning.  It was his James Derrick moment.  Derrick was Enron's Chief Counsel.  He told the Board Chair what happened and the CEO remains in his position.  You can deduce the rest.

Eric Holder's "Just Us" Department is one window into the world of horrific leadership on display in many elements in our society.  Consider these words from a former regulator charged with ensuring the stability of our financial sector.  They are in regard to behavior at Goldman Sachs and Federal Reserve oversight:

A Goldman employee expressed the view that "once clients are wealthy enough certain consumer laws don't apply to them." After that meeting, Segarra turned to a fellow Fed regulator and said how surprised she was by that statement -- to which the regulator replied, "You didn't hear that."
Another free pass.  It gets better (Bloomberg):

In 2012, Goldman was rebuked by a Delaware judge for its behavior during a corporate acquisition. Goldman had advised one energy company, El Paso Corp., as it sold itself to another energy company, Kinder Morgan, in which Goldman actually owned a $4 billion stake, and a Goldman banker had a big personal investment. The incident forced the Fed to ask Goldman to see its conflict of interest policy. It turned out that Goldman had no conflict of interest policy -- but when Segarra insisted on saying as much in her report, her bosses tried to get her to change her report. Under pressure, she finally agreed to change the language in her report, but she couldn't resist telling her boss that she wouldn't be changing her mind. Shortly after that encounter, she was fired.) 

Bloomberg illuminated another report on a captured Fed:
The Fed failed to regulate the banks because it did not encourage its employees to ask questions, to speak their minds or to point out problems.

Just the opposite: The Fed encourages its employees to keep their heads down, to obey their managers and to appease the banks. That is, bank regulators failed to do their jobs properly not because they lacked the tools but because they were discouraged from using them.
 This sounds like the "Just Us" Department under Eric Holder.

Under Holder's leadership, prosecutors lost sight of what mattered most: holding individuals, not companies, accountable for crimes. Of 21 separate actions against major financial companies from 2009 through May 2014, only eight were accompanied by charges against individuals, and none of them were high-level executives. The authors of any offenses related to the 2008 financial crisis can relax: In most of the cases, the statute of limitations now applies.
Leadership in our country seems focused on two things, having their way and image management.   Having their way means laws can be discarded.  Image management means thwarting or discrediting credible attempts to expose illegal behavior or hold leaders accountable.

Obama's war on whistleblowers fits into the 100% image management meme, which brings back my discussion with the corporate attorney.   I asked him:  Are arrogant, dismissive, and image obsessed leaders more prevalent the higher one rises in an organization?  He said absolutely.  There's an occasional ethical person or two below the top, but that level is mostly "yes people," sycophants.

self-seeking, servile flatterer; fawning parasite
What happens next to Eric Holder?   Certainly, the first steps will be work at a university or think tank.  Will he eventually end up on Wall Street or in private equity, like so many ex-public servants?   If so, his rewards will be great.  

Meanwhile, Valarie Jarrett will aid the search for Holder's replacement. 

Update 9-29-14:  Naked Capitalism has an excellent piece on Holder's zero dot zero batting average in this arena. Meanwhile, the Obama team relies on image management, selling settlements with no admission of wrongdoing and no convictions/jail time as being tough.

Update 12-8-14:  Eric Holder's Wall Street "Get Out of Jail Free" card is chronicled in video

Update 11-18-18:  NYT Columnist Maureen Dowd wrote about President Obama's abdication from prosecuting financial fraud.

Update 1-19-19:  Former SEC Attorney James Kidney shared his story of Obama/Holder catering to Wall Street via non-investigations and non-prosecutions.