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Barney Frank to Eric Holder: Time for Prosecutions . . . Really?

Posted by Larry Doyle on December 21, 2012 9:24 AM |

The American public in totality is not stupid, although they are often treated that way by many in Washington.

Scandalous behavior within major Wall Street institutions has run rampant over the last decade — and likely a lot longer than that — and been addressed almost uniformly with token fines (relative to revenues generated) that are little more than a cost of doing business. Why does such scandalous behavior persist?
Individuals are not held accountable by those charged with that responsibility.

Remember, corporations do not commit crimes. Individuals do. Let’s quickly review the current situation with UBS in which The Wall Street Journal writes, Critics Say UBS Let Off Too Easy:

In offices from Tokyo to London, dozens of UBS traders, supervisors and “senior managers” at the bank were implicated in rigging the London interbank offered rate, or Libor, and other key rate benchmarks, according to regulators.

Settlement documents agreed to by UBS detailed a pattern of repeated, far-reaching and brazen lawbreaking over a six-year period, with requests to manipulate Libor openly discussed on chat forums and in emails.

The Commodity Futures Trading Commission said it asked UBS for documents and information related to possible Libor manipulation in October 2008. But the bank didn’t start an internal investigation until the CFTC ordered it to do so in April 2010, the CFTC said. The delay allowed the “rampant misconduct” at the bank to continue “well into 2010,” according to the CFTC. Regulators also said a lack of proper controls at UBS created an “environment ripe for the traders…to abuse.”

What do we learn here?

We know that the US Treasury was aware of the rigging of Libor in 2008, if not earlier than that. The fact that UBS did not respond to CFTC requests made in late 2008 until mid-2010 indicates to me that the rigging of Libor was merely another of the tools utilized by the banks to drive revenue and recapitalize themselves. This manipulation was done with the knowledge — if not the blessing — of senior officials in Washington.

Beyond that, why is it that the most senior executives within the banks are not facing criminal charges? Would seem blatantly obvious that they could point right at the officials in Washington who were aware of the behaviors and say, “They knew all about it.”

In short, the banks continued to perpetuate a massive racket for the purpose of recovering from the losses connected to the market meltdown. All done with regulators and prosecutors blissfully looking the other way.

The American public gets this and has responded. How so? They are increasingly unwilling to participate in the markets, as reflected by declining volumes across most market segments.

Why haven’t any politicians called for criminal prosecutions of individuals? Well, one finally has. The soon-to-retire Democrat from Massachusetts Barney Frank wrote to Eric Holder the other day:

“I am writing to you as well as to financial regulators, understanding that the decision to pursue criminal proceedings rests with the Justice Department, so I ask that there be a series of consultations involving law enforcement officials and regulators with the goal of increasing prosecution of culpable individuals as an important step in seeing that the laws that protect the stability and integrity of our financial system are better observed.”

(Click on the image below to view a pdf of Frank’s entire letter)

What do I think of Frank’s letter?

I view this as likely little more than a form of political expediency for a Congressman all too familiar with Tuesday morning quarterbacking. Remember, Barney has  his bags packed and is soon heading out of town for good. Strictly my opinion, but I believe ol’ Barney here well knows the mood of the American public and would like to be able to point to his letter and say, “I did call for prosecutions.” Letters between public officials are often worth little more than the paper on which they are written.

Perhaps Barney Frank might gather a bipartisan group of his elected colleagues and stand on the steps of Capitol Hill and issue the same directive now and everyday until he exits stage left.

Public pressure strikes me as a necessary precondition for any sort of meaningful pursuit of real justice in this Libor scandal and many others. Without public pressure, the regulators and politicians are comfortable to literally let the clock run out and the attention on the scandal to fade. How often have we witnessed that scenario? Very often. That’s how they play the game and how they play the American public.

How must the public respond?

The American public needs a longer memory span and a louder voice in order to hold the criminals, the regulators, and the pols fully accountable.

Navigate accordingly.

What do you think?

Larry Doyle

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I have no affiliation or business interest with any entity referenced in this commentary. The opinions expressed are my own. I am a proponent of real transparency within our markets so that investor confidence and investor protection can be achieved.

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