Corrupt Government Officials Should Be In Jail . Alongside Corrupt Banksters

Wall Street fraud caused the Great Depression and the current financial crisis [25]. Top economists and financial experts [26] agree that our economy will never recover unless Wall Street fraud is prosecuted [27].

Yet the government has more or less made it official policy [28] not to prosecute fraud, and instead to do everything necessary to cover up for Wall Street [29]. For example, the Obama administration is prosecuting fewer financial crimes [30] than under Reagan or either Bush.

For example, we pointed out [31] in 2010:

The government’s entire strategy [32] now – as during the S&L crisis – is to cover up how bad things are.

But it is not only a matter of covering up fraud that has already happened. The government also created an environment which greatly encouraged fraud.

Here are just a few of many potential examples:

The government-sponsored rating agencies committed massive fraud [33] (and see this [34])
The Treasury department allowed banks to “cook their books” [35]
Regulators knew of and allowed [36] the use of debt-hiding accounting tricks by the big banks
Tim Geithner was complicit in Lehman’s accounting fraud [37], (and see this [38]), and pushed [39] to pay AIG’s CDS counterparties at full value, and then to keep the deal secret. And as Robert Reich notes [40], Geithner was “very much in the center of the action” regarding the secret bail out of Bear Stearns without Congressional approval. William Black points out [41]: “Mr. Geithner, as President of the Federal Reserve Bank of New York since October 2003, was one of those senior regulators who failed to take any effective regulatory action to prevent the crisis, but instead covered up its depth”
The former chief accountant for the SEC says [42] that Bernanke and Paulson broke the law and should be prosecuted
Freddie and Fannie helped to create the epidemic of mortgage fraud [43]
The government knew about mortgage fraud a long time ago. For example, the FBI warned of an “epidemic” of mortgage fraud in 2004. However, the FBI, DOJ and other government agencies then stood down and did nothing. See this [44] and this [45]. For example, the Federal Reserve turned its cheek and allowed massive fraud [46], and the SEC has repeatedly ignored accounting fraud [47]. Indeed, Alan Greenspan took the position that fraud could never happen [48]
Paulson and Bernanke falsely stated [49] that the big banks receiving Tarp money were healthy, when they were not
Arguably, both the Bush and Obama administrations broke the law by refusing to close insolvent banks [41]
Congress may have covered up illegal tax breaks [50] for the big banks
Economist James K. Galbraith wrote [51] in the introduction to his father, John Kenneth Galbraith’s, definitive study of the Great Depression, The Great Crash, 1929:

The main relevance of The Great Crash, 1929 to the great crisis of 2008 is surely here. In both cases, the government knew what it should do. Both times, it declined to do it. In the summer of 1929 a few stern words from on high, a rise in the discount rate, a tough investigation into the pyramid schemes of the day, and the house of cards on Wall Street would have tumbled before its fall destroyed the whole economy. In 2004, the FBI warned publicly of “an epidemic of mortgage fraud.” But the government did nothing, and less than nothing, delivering instead low interest rates, deregulation and clear signals that laws would not be enforced. The signals were not subtle: on one occasion the director of the Office of Thrift Supervision came to a conference with copies of the Federal Register and a chainsaw. There followed every manner of scheme to fleece the unsuspecting ….

This was fraud, perpetrated in the first instance by the government on the population, and by the rich on the poor.

The government that permits this to happen is complicit in a vast crime.

In other words, the fraud started at the very top with Greenspan, Bush, Paulson, Negraponte, Bernanke, Geithner, Rubin, Summers and all of the rest of the boys.

As William Black told me today:

In criminology jargon: they created an intensely criminogenic environment.

The government’s special inspector general in charge of oversight of the Troubled Asset Relief Program (the “TARP” bank bailouts) – Neil M. Barofsky – said [52] today:

It was a “message to the banks ‘if we commit fraud, we break the rules, don’t worry, we’re too big — they’ll never bring the appropriate steps against us,’” Barofsky says in an interview with The Daily Ticker. “And that is why we’ve had scandal after scandal after scandal.”

This was a “global conspiracy to fix one of the most important interest rates in the world,” Barofsky continues. “[Geithner] heard this information and looked the other way. Geithner and other regulators should be held accountable, they should be fired across the board. If they knew about an ongoing fraud, and they didn’t do anything about it, they don’t deserve to have their jobs. I hope we see people in handcuffs.“

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