It's All About Accountability

There is an interesting article in the latest New York Review of Books by Jed S. Rakoff, a Federal District Judge in New York, who asks why no high-level executives have been prosecuted for their role in the financial crisis that led to the most recent Great Recession.

Obviously, as a judge he is not presuming the guilt of  anyone. He recognizes the possibility that there may not have been any illegalities or fraudulent practices at all; maybe there was just a hell of a lot of negligence. But...

....the stated opinion of those government entities asked to examine the financial crisis overall is not that no fraud was committed. Quite the contrary. For example, the Financial Crisis Inquiry Commission, in its final report, uses variants of the word “fraud” no fewer than 157 times in describing what led to the crisis, concluding that there was a “systemic breakdown,” not just in accountability, but also in ethical behavior.

As the commission found, the signs of fraud were everywhere to be seen, with the number of reports of suspected mortgage fraud rising twenty-fold between 1996 and 2005 and then doubling again in the next four years....

 While officials of the Department of Justice have been more circumspect in describing the roots of the financial crisis than have the various commissions of inquiry and other government agencies, I have seen nothing to indicate their disagreement with the widespread conclusion that fraud at every level permeated the bubble in mortgage-backed securities.

The judge examines and shoots down the most common reasons given by Justice Department officials for the lack of prosecutions. Have you heard the excuse that "fraud is hard to prove?" Forget it; the Supremes have upheld the concept of "willful blindness" or "conscious disregard" as recently as 2011. Rakoff also examines a number of systemic realities which have worked to discourage prosecutions, such as inadequate investigative and prosecutorial resources and other cases with understandably-higher priorities, and he examines the unfortunate trend toward prosecution of corporations instead of the individual decision makers within those corporations.

Rakoff also points out that both the Executive and Legislative branches of the Federal Government helped create the conditions under which fraud could easily occur, and this seeming "complicity" might act to discourage prosecutors from going after individuals who would then pay very expensive lawyers to claim they were just doing what they thought was expected.

Still, fraud is fraud and Rakoff points out that the junk bond frenzy of the 1970s led to prosecutions up to the level of Michael Milken. The S&L scandal of the 1980s led to prosecutions, including that of Charles Keating. More recently the CEOs of Enron and WorldCom were successfully prosecuted. But, because of a five-year statute of limitations it is almost a certainty that no one will be prosecuted for any role in bringing about the recession whose effects are still being felt.

 In conclusion, he say that perhaps the financial crisis was not caused by fraudulent practices, 

But if it was—as various governmental authorities have asserted it was—then the failure of the government to bring to justice those responsible for such colossal fraud bespeaks weaknesses in our prosecutorial system that need to be addressed.

Just after reading this article by Judge Rakoff, I saw a story about a chemical spill in the Charleston, WV area from a storage tank owned by a company called, yecch, Freedom Industries. The number of people effected, and how serious the risks, are apparently not yet determined. But it seems on the face of it that a law has been broken. It clearly must be illegal to dump 4-Methylcyclohexane Methanol (it just has a very unhealthy sound to it, doncha think?) into a river, whether intentionally or not. We'll see what happens, accountability-wise. Why do I suspect the penalty will be unjustifiably light?

In the meanwhile, imagine being told by the supplier of your city water that the only acceptable use of the water that comes into your house from the city main is to flush your toilet. And imagine your likely response to the city's plea not to horde bottled water. How many bottles of water to take a bath? one wonders. Or imagine the anxiety of the pregnant woman who was blissfully drinking city water just minutes before the announcement was made not to drink city water.