No CEOs paid price for 2008 meltdown. Here’s why
TheStar.com – News/Insight – The U.S. financial sector drained taxpayers of $12.6 trillion in bailouts and more than 8 million jobs in North America. Why have no top CEOs gone to jail?
Mar 14 2014. By: David Olive, Business
With the statute of limitations close to expiring on the latest crop of “malefactors of great wealth,” as Theodore Roosevelt labelled reckless graspers in the business world, the question arises if any of the Wall Street culprits who triggered the Great Recession will ever be put behind bars.
Don’t hold your breath.
In most cases, U.S. prosecutors have five years from the time of an alleged offence to lay criminal charges. None have been laid against the 25 to 100 masters of the universe most commonly cited as architects of the Great Recession.
That rogues gallery includes the likes of Robert Rubin, the top Citigroup Inc. executive who earlier, as U.S. treasury secretary, set the piratics in motion by relaxing financial regulations, and at Citi encouraged the high-risk activity that imperilled the bank; and Angelo Mozilo, who super-charged the record U.S. housing boom and bust by providing mortgages for a fee to anyone with a pulse.
The dearth of criminal charges is mightily suggestive that no one will go to jail over the biggest economic catastrophe since the Dirty Thirties.
We’ll get to why that is in a moment. For now, it’s important to measure the cost of the catastrophe.
Recall that every major economy save Canada had to bail out its banking systems. Europe continues to do so. The U.S. financial sector, now sound, drained taxpayers of $12.6 trillion in bailout funds.
In North America, 400,000 Canadians lost their jobs and household income, while in the U.S. more than eight million workers were rendered jobless through no fault of their own. Unemployment rates across Europe, to which the U.S. contagion spread, remain in double digits in France (10.2 per cent) and Italy (12.9 per cent), and approach Great Depression levels in Spain (26 per cent) and Greece (27.5 per cent).
That hardship in the general population has required the infusion of state deficit financing to stimulate economic rebounds, from Ottawa to Berlin to Washington to Rome. Late last year, the Dallas Federal Reserve estimated that, even assuming the U.S. climbs out of the economic doldrums, the financial crisis will cost that country as much as $14 trillion — or about 90 per cent of GDP — to cover increased spending on social assistance.
In the previous epidemic of white-collar crime in the corner office, many CEO miscreants did go to jail, including those at Enron Corp., WorldCom Inc., Tyco International Ltd. and Adelphia Communications Corp. Even Conrad Black was caught up in that dragnet, ultimately serving 37 months in U.S. prison for 2007 convictions of fraud and obstruction of justice.
Yet the immensity of the later Wall Street malefactors and their counterparts in Europe utterly eclipsed the damage done by the individuals above, who didn’t remotely threaten the workings of the global economy.
It’s not as though we don’t know who the more recent culprits are. Let’s focus on just eight:
John Thain oversaw the demise of Merrill Lynch Inc. Kenneth D. Lewis’s Bank of America Corp. became a ward of the state. Charles Prince and Robert Rubin presided over the same fate at Citigroup Inc. Richard Fuld steered investment bank Lehman Brothers Holdings Inc. into an iceberg. Daniel Mudd’s Fannie Mae, the huge home mortgage provider, had to be seized by the U.S. government and placed in protective “conservatorship.” The aforementioned Angelo Mozilo’s Countrywide Financial Inc. was insolvent by 2008.
And American International Group Inc. (AIG), the world’s largest insurer, practically cornered the world market on insuring dodgy “financially engineered products.” The U.S. was obliged to rescue AIG with a spectacular cash infusion of $182 billion lest its insolvency trigger the collapse of the worldwide banks whose own soured investments were backstopped by AIG.
Those seven individuals and AIG’s zealous insurance-premium collectors were rewarded for their incompetence and reckless greed with a total of $1.5 billion in pay, severance, stock-option proceeds, pension benefits and in some cases the continued use of company planes and cars and drivers.
So, why hasn’t anyone gone to jail for the widespread human and economic wreckage those self-involved individuals caused? With the exception of Mozilo, who has coughed up $67.5 million in fines from his estimated $470 million in arguably ill-gotten gains, neither has there been any personal disgorgement of stupendous proceeds from aberrant behaviour.
Well, here’s why:
<bullet>The CEO culprits have already been fired or forcibly retired — punishment enough, in the minds of many.
<bullet>Some Wall Street firms — though rarely individuals — have settled civil charges of fraud, insider trading and other misdeeds with the U.S. Securities and Exchange Commission and other agencies. Mind you, the sums are small – a total of $716 million in four of the largest cases – but they at least show a hint of contrition.
<bullet>Wall Street has made a sufficiently compelling avowal to reform itself to encourage overworked state and federal prosecutors to back off.
<bullet>The Democratic Party has traditionally been overdependent on campaign donations from Wall Street. New York is a blue state, and even the most rock-ribbed Republicans on the Street are conditioned to lining the treasuries of Dems likely to hold regulatory sway over their fate. It was the Dems who accordingly, at Wall Street’s behest, relaxed and scrapped regulations during the Clinton years, turning the Street into a zoo with the bars down.
<bullet>Barack Obama, the president who inherited the clean-up, does not have the politically useful Wall Street contempt of a Franklin Roosevelt. In his first inaugural address, FDR said of the Crash of 1929 speculators that the “Rulers of the exchange of mankind’s goods have failed through their own stubbornness and their own incompetence, have admitted their failure, and have abdicated.”
FDR never ceased using the cudgel inadvertently provided by miscreant financiers to advance his remarkable social agenda. Obama, by contrast, has chosen to work with Wall Street’s avowed reformers rather than demonize them, though they are ripe for it.
Dick Fuld of Lehman said of his competitors in an unearthed internal video that, “I am soft, I’m loveable but what I really want to do is reach in, rip out their heart and eat it before they die.” And you wonder how some folks get the idea that financiers are sociopaths, the argument of the 2003 documentary, The Corporation.
<bullet>It’s not clear that Wall Street financiers and their agents in the hinterland committed felonies. That’s a frustration for bank-bailout-loathing Tea Partiers and soak-the-rich Occupiers alike. As veteran U.S. financial journalist Roger Lowenstein put it, perhaps best, back in 2011: “The financial crisis was caused by a speculative bubble in mortgages, in which bankers, applicants, investors and regulators were all blind to risk.”
So there it is, society’s to blame. “Right, we’ll be charging him too,” as Monty Python would have it.
We know better, of course. A clutch of celebrity financiers pushed the global economy over the edge. But there’s no law against that, also no vigorously enforced regulation and oversight, and it can’t be done without the acquiescence of a vast number of gullible people of all walks of life.
So, yes, we will see its like again.
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