March 7, 2013

The Real Reason Wall Street Always Escapes Criminal Charges? The Justice Dept Fears The Aftermath

The notion of too big to jail just got very serious as the nation’s chief attorney agreed with the idea that financial institutions are too large to prosecute.
US Attorney General Eric Holder testified before the  Senate Judiciary Committee on Capitol Hill today, and discussed the lack of criminal cases against financial institutions in the aftermath of the financial crisis.
That’s been a point of irritation and frustration for many in Washington and across the country who feel big banks that were partially responsible for the credit and housing bubble yet went unpunished. Instead, they were given billions in federal bailout money because they were deemed too big to fail. And now while their stocks recover the rest of the economy is barely trudging along.
Holder’s remarks today may add fuel to that fire.
“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy,” he said. “And I think that is a function of the fact that some of these institutions have become too large.”
In other words, too big to fail has morphed into something more perverse. Not only are big banks bigger than they were during the financial crisis but now the Department of Justice fears bringing criminal charges against them because of the possible repercussions such proceedings would have on the greater economy.
That’s not the first time we’ve heard about the Justice Department’s hesitation to prosecute big financial institutions. Most recently when going after UBS for its role in the global Libor scandal theWall Street Journal reported that officials at the DoJ were “heartened by the lack of a negative reaction in the markets and among regulators around the world to UBS‘s guilty plea. Before the settlement deal, some officials had worried it could destabilize the bank.”
That’s a very scary, very ugly way to run the country. Not only are financial institutions operating under the notion of too big to fail but now there’s room for them to behave as negiligently as possible without fear of a criminal case from the federal government.
It’s no wonder then that big banks hate the idea of breaking up. Just about every big bank CEO that has publically pushed back on the idea of breaking up their bohemoth institutions. Here are some of their reactions to the idea:
  1. Morgan Stanley CEO, James Gorman: “This is a knee-jerk discussion that’s been going on. We need to just calm down, let this play out with the new regulation, the new capital rules, and at that point then figure out which businesses to accelerate, and which businesses to slow down.”
  2. Bank of America CEO Brian Moynihan: The universal banking model is the “most important” model there is because it gives consumers access to global information, capital markets, investment advice and basic banking all in one place. “We can’t be competitive if we can’t provide all those services to our consumers,” he notes.
  3. JPMorgan Chase CEO, Jamie Dimon: “There are huge benefits to size. We bank Caterpillar in like 40 countries. We can do a $20 billion bridge loan overnight for a company that’s about to do a major acquisition. Size lets us build a $500 million data center that speeds up transactions and invest billions of dollars in products like ATMs and apps that allow your iPhone to deposit checks. We move $2 trillion a day, and you can see it by account, by company. These aren’t, like, little things. And they accrue to the customer. That’s what capitalism is.”
  4. Former Citi CEO, Vikram Pandit: “[Citicorp is] a tried and proven strategy. Why did it work? Because it was a strategy based upon operating the business and serving clients and not a strategy based on dealmaking. That’s the fundamental difference.”
It pays to be big and it also keeps you out of court.

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