The beginning of the end of the Roman Republic was when the ruling class loss respect for and the willingness to abide by their own rules. Scholars don’t frame it like that because it’s hard and boring. Instead they focus on economic changes like the flood of slave labor after the defeat of Carthage and Corinth. Alternatively, the political changes make for nice stories because the characters are interesting. The road off the cliff, however, started with the loss of respect for the spirit of the laws and customs.
The point when our politicians stopped punishing criminal financiers will similarly be looked at as an inflection point. There was a time when politicians and wealthy members of the ruling elite faced criminal punishment for breaking the law. Nixon was run out of DC for talking about what Obama boasts of doing. Michael Milken went to jail for two years for what is common today on Wall Street. A great trivia question is how many bankers went to jail for the sub prime mortgage scandal. The answer is zero.
This article on Bloomberg points this out.
Yesterday, we looked at why bankers weren’t busted for crimes committed during the financial crisis. Political corruption, prosecutorial malfeasance, rewritten legislation and cowardice on the part of government officials were among the many reasons.
But I saved the biggest reason so many financial felons escaped justice for today: They dumped the cost of their criminal activities on you, the shareholder (never mind the taxpayer).
Corporate executives theoretically work for the owners of the company, namely, the shareholders. But there is an agency problem in that owners can’t closely manage and object to the actions of these executives. Collective owners, such as mutual funds, seem to have no interest in doing so. What we end up with is a management class that works for itself instead of on behalf of the owners of the publicly traded banks. Many of these executives committed crimes; got big bonuses for doing so; and paid huge fines using shareholder assets (i.e., company cash), helping them avoid prosecution.
As for claims like those of white-collar crime defense attorney Mark F. Pomerantz, that “the executives running companies like Bank of America, Citigroup and JP Morgan were not committing criminal acts,” they simply are implausible if not laughable. Consider a brief survey of some of the more egregious acts of wrongdoing:
Foreclosure fraud: Of all the crimes committed during the financial crisis and in its aftermath, this is one that should have been the easiest to identify and prosecute.
Any bank that owns a mortgage with the debtor in default must follow a simple set of legal steps in order to foreclose. The procedure is time consuming, specific to each state’s laws and involves lawyers, so foreclosures are expensive. Hey, it is the cost of issuing credit, and a simple reality of the rule of law. There are no shortcuts.
Except the banks took many short cuts and did so on purpose and with the goal of improperly expediting the process. They failed to review the documents of the mortgages they were foreclosing on, then told courts they had. They didn’t verify information, but claimed to have done so in sworn affidavits. They hired $8 an hour burger-flippers to “robosign” these documents, pretending the underlying legal work had been done. They knowingly used falsified records, some of which they bought en masse. They were aided by a company called DocX, which had a price list of fabricated documents for use in court. (DocX, by the way, was eventually indicted on charges of mortgage fraud).
After creating phony dossiers on borrowers, the banks signed and notarized affidavits stating they had taken all of the legal steps. In many cases, even the notarizations were fakes. Submitting a falsified notarized affidavit to a court is perjury and fraud.
Of course, the burger-flippers who did the paperwork didn’t think up the whole scheme — someone much higher did. Somewhere between these low-level workers and the chief executive officer were managers who masterminded robosigning. So far, just one midlevel executive has been convicted at Bank of America, while scores of others have gone untouched.
Mortgage underwriting: Then there are the crimes committed in mortgage underwriting, where defects were knowingly ignored. The FBI investigated these cases early on, but investigators never moved forward with prosecutions.
Maybe the scale of the financial penalties bank agreed to pay had something to do with this inaction. Bank of America, for instance, using shareholder money, paid $16.65 billion to settle allegations of fraudulent mortgage originations, securitizations and servicing. One can’t help think that this money bought immunity from prosecution for executives.
Money Laundering: Banks have been laundering staggering sums of money for drug dealers and terrorists. Hey, there are big bucks in high net worth narco-terrorists. Awash in cash, drug cartels relied on big banks to launder their ill-gotten money. Apparently, it was just good business to grab a slice of that pie. However, these are deeply offensive, very illegal activities, and deserve not just penalties, but jail time.
How much of this dirty money made its way through the banks? One analysis estimates that $1.6 trillion of tainted proceeds has been laundered through major money-center banks around the world.
A U.S. Senate report linked HSBC to drug lords and terrorists, leading to a record $1.9 billion fine. The Federal Reserve faulted Citigroup over its controls, allowing money laundering to go on. And Wells Fargo admitted to laundering money for Mexican drug gangs.
• Market manipulation: We haven’t even gotten to the manipulation of markets in violation of U.S and international law. Whether it was aluminum or Libor rates, prices were either improperly manipulated or illegally rigged, with knowledge of the bank executives and the traders they employed and supervised. Let’s not forget manipulating the multitrillion dollar derivatives market.
• Fraud, skimming and bid-rigging: Then there is just good old-fashioned fraud and bid-rigging: State Street Bank was accused of skimming money off of the pension transactions it handled while BNY Mellon was accused of skimming money for “fictitious” foreign-currency costs for pension funds.
• Accounting fraud: We could spend months discussing how some executives at banks cooked their books, but really, this is so well known that it hardly merits mention.
The Roman Republic eroded when there were no longer enough Roman citizens left to singly bear responsibility in defending Rome from the German tribes, much less from increasing Empire. First the proles were included in the new deal, then the barbarians. Bread and circus’s next. At least we can say this for the Romans–the Empire lasted longer than the Republic. Not going to happen that way here.
“The beginning of the end of the Roman Republic was when the ruling class loss respect for their own rules. Scholars don’t frame it like that because it’s hard and boring.”
Actually, I don’t think this assertion is true, since I’ve written a book on the fall of the Republic that does discuss the impact of the implications for the military recruitment system of the large-scale importation of slaves but at the same highlights the breakdown of the traditional civic order as a major element in the ultimate failure of the system. And I can assure the prose is not “boring”!
If you want, send me an email and I’ll mail you a copy of the book. It’s the least I can do, since I frequently copy over amusing quotes from your blog onto my FB page for the enlightenment and/or annoyance of my SWPL friends.
I recently wrote a piece on Oscar Wilde explaining that he had been imprisoned, not for sodomy, but for vulgarity. No one cared that Wilde liked to bugger rent boys. They cared that he brought his rent boys to dinner at the Cadigan Hotel. They cared that he was making a public spectacle of himself, sniggering and chortling with a superior air, flaunting his vice. He had to be put down, in the harshest manner possible. In the movie WILDE, an elderly aristocratic lady states, “if an aristocracy cannot set the example, what’s the point of having one?” Exactly.
Just a few decades later the Bloomsbury crowd was publicly advocating and openly flaunting the types of attitudes and activities that got Wilde two years of hard labor. Instead of being pilloried, they were hailed as liberators. This lapse was a harbinger of things to come. The mighty English ruling class, effete, arrogant, and unmoored, then proceeded to wreck the economy, stumble into the meat grinder horrors of two world wars, and destroy the Empire. By 1950 they were finished, and rightly so.
Look at England today. You’d never know they once ruled the world. It doesn’t seem possible.