{"id":1752,"date":"2017-07-14T04:47:49","date_gmt":"2017-07-14T11:47:49","guid":{"rendered":"https:\/\/worldcampaign.net\/?p=1752"},"modified":"2017-07-14T04:47:49","modified_gmt":"2017-07-14T11:47:49","slug":"how-obamas-failure-to-prosecute-wall-street-set-the-stage-for-trumps-win-the-huffington-post","status":"publish","type":"post","link":"https:\/\/worldcampaign.net\/?p=1752","title":{"rendered":"“How Obama\u2019s Failure To Prosecute Wall Street Set The Stage For Trump\u2019s Win”, The Huffington Post"},"content":{"rendered":"
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By Alexander C. Kaufman, 7\/11\/17<\/p>\n

A “chickenshit club” of prosecutors who only pursue easy targets managed to change history, a veteran All Street reporter argues in a new book.<\/p>\n

In his eight years as president, Barack Obama oversaw a civil rights renaissance<\/span><\/a>, laid the groundwork for combating climate change<\/span><\/a>, and shepherded the nation through its worst financial crisis since the Great Depression.<\/p>\n<\/div>\n

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But his failure to prosecute Wall Street executives for causing the collapse of the housing market ushered in an era of populist rage that cleared the path for a demagogic reality-TV star to take the Oval Office, according to Jesse Eisinger\u2019s new book, The Chickenshit Club, <\/em>which hit shelves on Tuesday.<\/p>\n<\/div>\n<\/div>\n

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\u201cIf they had, the history of the country would be different,\u201d Eisinger, a veteran financial reporter at ProPublica whose investigation<\/span><\/a> on shady crisis-era Wall Street practices won a Pulitzer Prize<\/span><\/a> in 2011, told HuffPost by phone. \u201cWe would think of the financial crisis differently, think of the Obama administration differently; there would be a sense that the government was legitimate. There would be a sense of accountability after the crisis, the reforms would be tougher.\u201d<\/p>\n<\/div>\n

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He added: \u201cI don\u2019t think we would have Donald Trump<\/a> as president.\u201d<\/p>\n<\/div>\n

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The book traces Department of Justice impotence on corporate crime back two decades. In 2000, the dot-com bubble burst, and the sudden deflation of highly valued early internet firms increased scrutiny over companies\u2019 books across industries. At Arthur Andersen, the Chicago-based accounting giant that for nearly nine decades had been one of the nation\u2019s top auditing firms, troubles began to mount. In 2001, the firm settled<\/span><\/a> with the Securities and Exchange Commission for making false and misleading statements about Waste Management Inc. In 2002, the company found itself<\/span><\/a> in the middle of telecom giant WorldCom\u2019s $3.8 billion fraud scandal.<\/p>\n<\/div>\n

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That year, President George W. Bush, eager to steady a quivering economy, signed an executive order<\/span><\/a>establishing the Justice Department\u2019s Corporate Fraud Task Force. The team of prosecutors would ultimately bring down Enron in what became the world\u2019s most infamous accounting-fraud scandal. But before toppling the energy-services company and sending its top executives to prison, DOJ investigators would snag another big fish, catching Arthur Andersen shredding its audits of Enron. In June 2002, the world\u2019s fifth-biggest accounting firm effectively shut down after a conviction for obstructing justice.<\/p>\n<\/div>\n

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The conviction rippled through the corporate world as Arthur Andersen laid off thousands of employees. The shock wave inspired a fierce backlash from corporate lobbyists and defense attorneys. They launched a PR campaign that painted prosecutors as overly aggressive cowboys willing to put people out of work and destabilize markets. Groups like the U.S. Chamber of Commerce funded appeals of the conviction all the way to the Supreme Court, and in 2005, the high court unanimously ruled against the Justice Department.<\/p>\n<\/div>\n

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The court found that prosecutors failed to properly convey to the jury the laws Arthur Andersen broke \u2015 essentially letting the firm off on a technicality, Eisinger argues. \u201cToday, prosecutors remain reluctant to indict large corporations for fear of driving them out of business,\u201d Eisinger concludes early in his book. \u201cAndersen had to die so that all other big corporations might live, free of prosecution.\u201d<\/p>\n

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Changes to the way the Justice Department treated white collar crime came into sharp relief after the 2007 financial crisis. The Corporate Fraud Task Force of 2002 boasted nearly 1,300 fraud convictions by the time Obama replaced it in 2009 with the Financial Fraud Enforcement Task Force. The new entity combined the efforts of the Justice Department, the Department of Housing and Urban Development, the Securities and Exchange Commission and the Treasury Department, in what then-Treasury Secretary Timothy Geithner promised<\/span><\/a> would \u201cact aggressively and proactively in a coordinated effort to combat financial fraud.\u201d But, lacking the focus or prosecutorial muscle of its predecessor, the task force turned out to be what critics called<\/span><\/a> \u201ca clearinghouse of information and resources to facilitate enforcement by other government agencies.\u201d One former Justice Department official derided it to Eisinger<\/span><\/a> as \u201cthe turtle.\u201d<\/p>\n<\/div>\n

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The book takes its name from an address then-U.S. Attorney James Comey gave in 2002 to a fresh-faced crop of elite Justice Department recruits. Before becoming the best-known FBI director since J. Edgar Hoover, Comey oversaw the Southern District of New York, a federal jurisdiction with domain over Wall Street. The district has long served as the premiere assignment for prosecuting corporate wrongdoing, with a magnetic attraction to some of the country\u2019s most ambitious young legal minds. In the speech, Comey warned against joining the \u201cchickenshit club\u201d \u2015 his shorthand for prosecutors who only pursue cases they\u2019re almost certain to win. Justice, he argued, came of taking on violators for whom the system seems rigged, not picking off easy targets.<\/p>\n<\/div>\n

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One of the book\u2019s best examples of Comey\u2019s unheeded advice comes in the form of another figure famous today for his public disputes with the new administration: Preet Bharara, who served as the U.S. attorney in Manhattan from 2009 until Trump abruptly fired him in 2017. Bharara earned a reputation as the \u201csheriff of Wall Street\u201d for prosecuting crooked hedge fund managers and insider trading cases. But as Eisinger describes it, the nickname was overblown. Compared with financial giants\u2019 reckless mortgage security trading, insider trading amounted to a \u201ctwo-bit, low-level crime that has nothing to do with the systemic corruption on Wall Street,\u201d he said.<\/p>\n<\/div>\n

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\u201cIn the wake of the worst financial crisis since the Great Depression, right in Preet\u2019s backyard, when banks that he and his office were supposed to police made egregious mistakes and acted recklessly and, I think, committed crimes up and down, the fact that they didn\u2019t prosecute is a scandal,\u201d Eisinger said. \u201cThe argument that they looked and didn\u2019t find anything isn\u2019t persuasive. They either didn\u2019t look very hard, or they didn\u2019t dedicate enough resources.\u201d<\/p>\n<\/div>\n

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It\u2019s easy to feel cynical about the broader legal system outlined in The Chickenshit Club. <\/em>And at a time when the Justice Department faces a shrinking budget<\/span><\/a>, the idea of a well-funded task force sniffing around potential dead ends for corporate crime is difficult to imagine. The first stages of a corporate criminal probe are typically carried out by a law firm hired by the company under investigation. For example, in 2008 \u2015 two years after its CEO became the first top executive on Wall Street to own a company stake worth $1 billion<\/span><\/a> \u2015 Bear Stearns hired a law firm to probe the collapse of its mortgage-related hedge funds. Later that year, company, on the brink of bankruptcy, was\u00a0sold<\/span><\/a> to JPMorgan Chase at a fire-sale price.<\/p>\n

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\u201cThe great secret to corporate criminal prosecution is that we have privatized and outsourced it to the companies themselves,\u201d Eisinger said. \u201cIn doing so, they\u2019re taking cues from the client of the company, and the client of the company is going to be studiously incurious about following investigative threads that might lead to the CEO or board rooms. Instead, they point the finger at a middle manager or someone expendable, and that\u2019s the person who gets indicted by the general government.\u201d<\/p>\n<\/div>\n

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It\u2019s a revolving-door system. Those same law firms poach Justice Department prosecutors, with offers of far higher salaries than the government can afford. That makes the Justice Department just a middling step in the pipeline between elite law schools and big firms, which is true regardless of politics these days. Firms like WilmerHale and Covington & Burling lean Democratic, while Jones Day leans Republican.<\/p>\n<\/div>\n

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\u201cThe Democrats have very few differences from the Republicans now,\u201d Eisinger said. \u201cThey\u2019re both drawing from the same elite legal culture, they\u2019re all essentially clerking from the same judges or the same courts. \u2026 They\u2019re all drawing from the same well with just little gradations in difference on ideology, mainly around social issues.\u201d<\/p>\n<\/div>\n

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There are steps that would help. Salaries for Justice Department prosecutors top out around $150,000. That makes offers nearing seven figures from private firms hard to resist for someone in a costly city like New York or Washington. Eisinger recommended raising salaries for such public servants to $400,000.<\/p>\n<\/div>\n

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\u201cThe reality is you have a couple kids in New York City, and you do have great needs if you want to live an affluent life,\u201d he said. \u201cWe should not say that you should live a life lacking in status or material wealth if you want to serve the government. That\u2019s not the way to get the best service.\u201d<\/p>\n<\/div>\n

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To its credit, The Chickenshit Club<\/em> presents a stable of heroes, too. There\u2019s Kathy Ruemmler, the former deputy director of the Enron Task Force who delivered the government\u2019s closing arguments in the trial that convicted former Enron executives Kenneth Lay and Jeffrey Skilling and later went on to become Obama\u2019s White House counsel. And there\u2019s U.S. District Judge Jed Rakoff, who argues to this day<\/span><\/a> that government enforcers lack a backbone when it comes to indicting corporations. And Benjamin Lawsky, New York state\u2019s former head of the Department of Financial Services, who, absent indictments, fined big banks<\/span><\/a> hundreds of millions of dollars and forced dozens of employees to resign.<\/p>\n<\/div>\n

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For all the failures of the Obama administration, the Trump White House threatens to be \u201can order of magnitude worse,\u201d Eisinger said. Already, Attorney General Jeff Sessions<\/a> has made street crime and drug enforcement higher priorities than corporate misdeeds. White House officials indicated that antitrust approval of AT&T\u2019s merger with CNN-owner Time Warner may hinge on personnel changes at the network, whose aggressive reporting has drawn Trump\u2019s ire. Plus, Trump refused to sell his personal business, raising concerns that the Justice Department could become a tool to reward or punish the president\u2019s partners and rivals.<\/p>\n<\/div>\n

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\u201cWe\u2019re going to have a kleptocratic administration that looks the other way at corporate crime and hands the federal government over to corporates for all sorts of malfeasance,\u201d Eisinger said.\u00a0\u201cI anticipate the worst Department of Justice in our lifetimes.\u201d<\/p>\n

The Huffington Post<\/a><\/p>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

By Alexander C. Kaufman, 7\/11\/17 A “chickenshit club” of prosecutors who only pursue easy targets managed to change history, a veteran All Street reporter argues in a new book. In his eight years as president, Barack Obama oversaw a civil rights renaissance, laid the groundwork for combating climate change, and shepherded the nation through its […]<\/p>\n","protected":false},"author":1001004,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[53],"tags":[],"_links":{"self":[{"href":"https:\/\/worldcampaign.net\/index.php?rest_route=\/wp\/v2\/posts\/1752"}],"collection":[{"href":"https:\/\/worldcampaign.net\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/worldcampaign.net\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/worldcampaign.net\/index.php?rest_route=\/wp\/v2\/users\/1001004"}],"replies":[{"embeddable":true,"href":"https:\/\/worldcampaign.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1752"}],"version-history":[{"count":1,"href":"https:\/\/worldcampaign.net\/index.php?rest_route=\/wp\/v2\/posts\/1752\/revisions"}],"predecessor-version":[{"id":1753,"href":"https:\/\/worldcampaign.net\/index.php?rest_route=\/wp\/v2\/posts\/1752\/revisions\/1753"}],"wp:attachment":[{"href":"https:\/\/worldcampaign.net\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1752"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/worldcampaign.net\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1752"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/worldcampaign.net\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1752"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}