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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

Isn’t it time or overtime to subscribe to all my work via e-mail, an RSS feed, on Twitter or Facebook.

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.

  • Beth

    Larry, what are your thoughts on the following article? How will this impact the small investor, if at all?

    NYSE Bell Tolls for Exchange That Fell Behind

    Thanks, Beth

    • LD

      Beth,

      The fact that the NYSE is compelled to sell itself to an entity such as the Intercontinental Exchange indicates to me the following:

      1. The failed business model as a for profit institution implemented less than ten years ago.

      2. The days of individual traders getting a fair shake in the electronically dominated equity markets are over.

      The electronically dominated exchanges largely prey upon individual investors for the benefit of those that drive the flows.

      The contrasts between buyer and seller are stark, and go a long way to explain the deal’s backstory: The NYSE is the world’s largest stock market where the trading floor and colonnaded structure in the heart of Wall Street are symbols of American-style capitalism.

      ICE, as the buyer is known, offers mostly electronic futures trading and clearing. For better or worse, the NYSE and its focus on a shrinking equities market is the past, and ICE, which specializes in the booming derivatives business, is the future. The wonder isn’t why the NYSE is being acquired by an arriviste, but what took so long.

      Even if ICE keeps the NYSE (NYX) and its floor intact, as it has promised NYSE officials and New York’s congressional delegation, it is a bittersweet moment for the Big Board. Its roots go back to 1792, when merchants gathered under a buttonwood tree on Wall Street to trade Revolutionary War bonds.

      The exchange clung to its trading-floor traditions for too long, although in recent years it bravely tried to transform itself. ICE, based in Atlanta and only 12 years old, is barely out of diapers. What it lacks in sophistication it makes up for with a willingness to throw out the rulebook and experiment with new technologies and trading instruments.

      The NYSE’s reputation had faded over the last decade for many reasons, including a scandal in which floor traders were accused of collusion. Former Chairman Richard Grasso’s $140 million pay package in 2003 highlighted the old-boy atmospherics.

      Once regulators in 2005 made it easier for low-cost electronic markets to compete, the NYSE bought its own electronic facility and became a public company. In spite of that, market share declined, and today the NYSE does only 21 percent of the trading in its own listed stocks.

      The days of the NYSE are over. Not that the NYSE ever fully treated individual investors well but with the electronic superhighway now the present and the future, individual investors would best be served by staying off that road . . . and they are as reflected in the declining volumes across all markets both exchange traded and over the counter.

  • Peter Scannell

    LD – I’m a stunned that you’re not applauding the congressman’s appeal! His plea is exactly what you have expressed over and over again on Sense on Cents. This country needs the support of both parties in order to start locking up the thieves – if you put an imaginary bag over his head you’d be slapping him on the back and offering to buy him a beer!

    If you’re preconceived belief is that only one party can see the light, than it will get even darker.

    Call the same balls and strikes for both teams LD – Barney’s pitch was right down the pipe!

  • LD

    Peter,

    You are misreading what I am saying here. You are zeroing in on a political angle. I am targeting the fact that I believe this letter will do nothing but provide BF a convenient cover.

    We need public outcries on the steps of Capitol Hill and elsewhere. Will Congressman Frank and others FROM BOTH SIDES OF THE AISLE take that bold step? I will believe it when I see it.

    Is this a start?

    Perhaps but I am reticent to say that this is a turning point. I am raising the bar on Barney and EVERYBODY ELSE.

    PUBLIC press conferences should be a start. Daily calls and updates should be step two.

    Just my opinion. To accept Barney’s letter as likely to create meaningful change or movement strikes me as naive.

  • Peter Scannell

    As you well know LD, my naiveté has brought about great change – and I also hold onto hope. I know what it takes for an ordinary man, let alone a congressman, to be the first to risk standing up and saying something is wrong and has to change!

    If my naiveté believes that no one is beyond reproach regarding individual criminal behavior, that we all need to be held accountable to the choices we make, good or bad, then so be it.

    If naiveté is not realizing the seemingly insurmountable odds against achieving what no one before have been capable of doing – then we need far more naiveté.

    Naiveté is unbiased, and we need less bias. We need less cynicism and ego in our leaders – and more innovation and inspiration.

    I applaud Barney guts for standing up whether or not he’s walking out the door – hell, I’d go a step further than my previous post, I’d buy him a beer and give him a “way to go” slap on his ass!

    I think Barney would appreciate the gesture.

    • LD

      Peter,

      I appreciate your holding onto hope as do I. Without hope we might as well all give up. But hope is not a strategy.

      I do not view your other statements as having any connection to naivete at all. In fact, I would say they display the traits that are the polar opposite of naivete.

      In regard to Barney’s letter, I too would slap him on the ass as I push him out in front of the lights and cameras. Would he be willing to go to that length? Would any politician from either side of the aisle?

      Thanks for the perspectives. I appreciate and respect them.

      • Peter Scannell

        LD, let me clarify my meaning of hope regarding the matter –it’s not that of a sucker!

        My hope is that the duty mandated with a very clear intent by our Congress-and more importantly by our nation, is being carried out with guts. But most importantly, and actually a quote of Congressman Frank during Dodd Frank hearings – a revelation that most of our nation failed to adhere leading up to our bust, is secondly – “trust, but verify.”

        You catch my drift – no beef.

  • Mark J. Novitsky

    How courageous and thoughtful Barney Frank (anyone in govt. red or blue team) to FINALLY speak up just as the statute of limitations is about to expire on all these CRIMES! I am working with an alliance World Bank Whistleblowers and this HUGE story will be breaking after the Holidays. Massive Institutional / Systemic Securities Fraud / Corruption, FTO & Drug $$$ laundering, LIBOR…next up World Bank…but at least now an Alliance is being formed to finally expose and force prosecutions, accountability and most of all the restoration of Justice…

  • http://www.RestlessBoomers.com Cate

    Larry,

    You have it just right, policical expediency on his way out, he wants to be able to say he ‘tried’ . . hogwash! My take is that the only way you’ll ever see ‘criminal prosecutions’ on any of these issues is to write yourself a real nice ‘fiction’ novel where the good guys win (which you are more than capable of doing) and sell a kazillion copies on Amazon.

    How must the public respond? How’s this for the public pressure you are seeking: I believe we will shortly see the revolution unfold and it’s going to get very ugly. The politicos had many opportunities to turn the ship around but as you said, are just waiting for the clock to tick away yet again and they can move on to creating their next scandel.

    And remember, the first American Revolution only involved less than 5% of the People. This time the percentage may be a bit higher but probably not much. There are just too many people continuing to watch Dancing With The Stars and American Idol and frankly just are not capable of governing themselves.

    Unfortunately that puts a tremendous burden on the rest of us to save our nation. You, like many others, go way above and beyond the call of duty in that regard, thank you.

    And thanks for the post Larry.
    ~Cate

    • LD

      Cate,

      Does it need to be fiction? How about a work of non-fiction?

      Wouldn’t that be so much better?

      I am well into doing just that.

      A kazillion copies? I would be more than happy with a half-kazillion.

      • http://www.RestlessBoomers.com Cate

        Larry,

        Good for you! I prefer the non-fiction myself but I don’t think we’ll see as many of the criminals put in jail as you could do in ‘fiction’.

        Just ran across this on the Libor Scandal, Statement of Facts, Non-prosecution agreement: UBS AG’, (United States, Department of Justice, 18 December 2012).

        First off, this is a prime example of that lovely incestuous relationship you always talk about, ‘Non-Prosecution Agreement’ . . . wow!

        Of particular interest is the last page, under the subtitle ‘UBS’s Accountability’.

        It only talks about yes, they acknowledge that the participating employees (translate: criminals) were within the scope of their employment but UBS was exposed to ‘substantial financial risk’ (translate ‘substantial financial profit’) so, yea, I guess we’re responsible. But as a result of the aforementioned possible financial risk and fines imposed, we’ve now suffered actual financial loss so it’s all better now.

        What a scam! Nowhere in there does it discuss their accountability for any of the damage caused to our financial system, the full extent of which remains to be seen (or should I say felt), or to our nation as a whole.

        Not until some of these ‘employees’ are in jail (personally I think they should be drawn and quartered, call me old fashioned!) will we have any hope of seeing these scandals subside.

        Keep up the good work!
        ~Cate

  • jim wells

    Almost frightening when Barney Frank appears to have more testicular fortitude than the nation’s top cop. But his call is a reminder of the almost total lack of such calls by Congress since the run-up to the Financial Crisis.

    Either he is emboldened by not having to reply on bank contributions to a re-election fund, or he’s emulating the calls of British policy-makers, or both.

    But it’s also a reminder that even when Sen. Levin’s Committee presented with full documentation on Goldman Sachs’ selling of “Sh*tty” securities, the DoJ has not seen fit to prosecute Too Big To Behave Banks.

  • Randy

    Nothing more than a pitiful 11th hour attempt at a little career window-dressing as Frank edges toward retirement. They are not going to go after anyone who can implicate their own. That much should be obvious to even the average American.

    Also, I feel you may be giving considerable undeserved credit to the intelligence of the average American. It is of course nice to say they are not stupid.. but the facts suggest either stupidity or apathy and neither bodes well for our futures.

  • Hawk

    Fraud, farce, BS!!!!!

    Barney Franks lover was installed as an executive at Fannie Mae. Under the watchful eye of Franklin Raine’s and Barney’s pillow biting pal, Fannie plundered the country’s Treasury.

    This is like John Dillinger calling for increased accounting
    surveillance at the OCC.

    What a freaking joke.

    • Randee

      You mean “Barney Frank’s lover.” Please take a remedial course in punctuation before commenting further. I consistently find errors in your posts.

  • Obsvr-1

    If Eric Holder had any B&^%$ or moral fiber left in his being he would
    Self Report to Prison.

    • http://www.RestlessBoomers.com Cate

      Obsvr-1: That would imply that he had any to begin with, moral fiber I mean. And why stop there, I wouldn’t want to support him the rest of his life. Better he should just rid the planet of his being since he apparently wouldn’t mind the sinning that would come with that.

      Good comment.

  • Earl

    In my opinion Barney is the “pot calling the kettle black”! Forget Libor for a minute, he and Chris Dodd are the first ones who should be standing in line to be prosecuted over the whole motgage debaucle that should fall squarely on their shoulders but no one wants to take that on apparently!

    Just my two cents from a very frustrated tax-payer,






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