Friday, May 2, 2014


Barry Ritholtz provides us with a masterful analysis of everything that's wrong with our political and economic system today in "Banks Take the Economy Hostage" ...

Prosecutors are considering bringing criminal charges against two overseas banks for charges ranging from perjury and fraud to laundering money. As detailed yesterday by a trio of Bloomberg News reporters, the key takeaway from the banking community was reflected in the headline: ``Criminal Charges Against Banks Risk Sparking Crisis.'' 
The reaction has been swift. “Don’t’ play with matches” exhorted Sanford C. Bernstein banking analyst Brad Hintz. Former Federal Reserve lawyer Gil Schwartz warned “The mere threat of requiring a hearing could cause customers to lose confidence in the institution and could cause a run on the bank.” U.S. Attorney Preet Bharara recounted the picture bankers painted if prosecutions occurred: “Oceans will rise; nuclear winter will be upon us; and the world as we know it will end.” 
... It used to be thought that fear of indictment, personal disgrace and threat of jail would keep bankers from engaging in illegal activities. But the extraordinary intervention of the U.S. government and Federal Reserve changed the dynamics of prosecution. 
... Prosecute our clients, said the bankers’ lawyers, and you risk destabilizing a fragile financial system. Put a systemically important financial institution in your cross hairs, and you put the entire global economy at risk. 
The Bush and Obama administrations bought this line of reasoning. 
This argument should never have carried the day. The job of a prosecutor is to prosecute, not to make economic forecasts. Convincing various governmental departments not to do their jobs was a masterful act of salesmanship, one that undercut fundamental principles of rule of law.

Ritholtz goes on to note that economists aren't very good at explaining what happened in 2008, so why should we listen to them when they make predictions about a future filled with indictments?

The rise of corporate impunity in America lies at the heart of what's wrong with America today. By failing to pursue financial crimes the Bush and Obama administrations have turned the Department of Justice and the U.S. Attorney's office into caricatures of what they are supposed to be.

Because Wall Street and their investment divisions no longer fear criminal prosecutions they know they are protected aristocrats. It's why they've taken our nation's economy hostage.

- Mark 

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