It's been eight years since the financial crisis, but some wounds remain unhealed: Among them, the Obama administration's almost total failure to prosecute senior Wall Street executives for the criminal activities that helped precipitate the collapse. On Thursday, Sen. Elizabeth Warren (D-Mass.) put law enforcement on notice that she's not prepared to let the issue die.
Warren wrote two letters. The first, to the inspector general of the Department of Justice, is long but pretty straightforward: She wants the inspector general to investigate the decision-making process by which the department chose not to prosecute so many potential cases. Specifically, Warren wants to know what happened to the recommendations of the Financial Crisis Inquiry Commission (FCIC), a 10-person investigative body that Congress put together in 2009 to understand how the financial crisis and resulting economic collapse happened. The commission provided the Justice Department with an enormous pile of evidence in 2011, but it had no formal power beyond referring possible cases of wrongdoing.
That documentation was only opened up to the public in March of this year. Warren says her staff combed through the material, and found 11 referrals implicating nine individuals in "serious indications of violation[s]' of federals securities or other laws." They include the then-CEOs and CFOs of Fannie Mae, AIG, Merrill Lynch, and Citigroup.
"The DOJ has not filed any criminal prosecutions against any of the nine individuals," Warren wrote. "Not one of the nine has gone to prison or been convicted of a criminal offense. Not a single one has even been indicted or brought to trial."
Warren's staff also found potentially illegal activity across 14 different corporations. And again, no one was indicted or tried for this, though Warren notes that five of the 14 settled cases with the DOJ and paid fines.
That last part is especially significant.
Ultimately, the financial crisis was pretty straightforward: A newly deregulated financial sector engineered a bunch of fancy financial products that allowed huge amounts of garbage mortgages to be passed off as perfectly safe investments. As a result, churning out lots of garbage mortgages became a very profitable enterprise. So huge numbers of less fortunate Americans and homeowners were defrauded and deceived into taking on credit they could never repay, in order to feed that supply of garbage mortgages. This all continued until the bubble popped and the whole thing came crashing down.
The questions then become: How high up the chain of command did this deception go? Were the people in charge of the banks and the financial firms knowingly deceiving investors with these financial products? Or was the financial engineering so good it fooled Wall Street itself?
For a long time, the explanation for why then-attorney general Eric Holder and the rest of the Justice Department didn't attempt more prosecutions was that a lot of the possible culprits were thought to be merely stupid, not criminal. But as John Cassidy wrote at The New Yorker a while back, that logic has been more or less blown up by the massive settlements several major banks reached with government prosecutors. Bank of America paid $8.5 billion to settle charges against Merrill Lynch and Countrywide Financial — which it's owned since the crisis — and JPMorgan Chase paid $13 billion.
Critically, the settlements involved mounds of documentation and statements by key players in the firms, all of which made it pretty clear that people up and down the chain of command knew and understood what was going on. That didn't sound like stupidity or even negligence, Cassidy observed. "It sounds a lot like securities fraud, which is a criminal offense."
The more disturbing explanation for the Justice Department's reticence emerged later, when Holder and Lanny Breuer — another senior DOJ staffer at the time — effectively admitted they didn't go after major Wall Street executives for fear of creating even more financial panic and damaging the economy further. Basically, they decided Wall Street banks were too big to prosecute.
Which brings me to Warren's second letter, to FBI Director James Comey.
While this one is shorter, it might be even shrewder. Warren wants the FBI to release all the documents relating to its own investigations into the FCIC's referrals. Normally, the FBI stays mum on cases the Justice Department decides not to take on. But Warren noted that Comey himself broke that precedent when he went into great public detail explaining why the FBI would not recommend that Hillary Clinton be prosecuted following the investigation into her email server. Comey said he thought that course of action was called for, because of "intense public interest" in the matter.
In what's probably the mother of all understatements, Warren noted that standard applies to prosecutions for the financial crisis.
Basically, Warren is trying to use the new precedent Comey created to force the conversation about which Wall Street executives could have been prosecuted — and why they weren't — out into the open. That Warren's doing it with a case involving Clinton is especially ironic, since the conversation would be starting just as a new president — presumably Clinton — is entering office. And if it's Clinton, the Democrats may well also retake the Senate, giving Warren even more clout. Warren may be a supporter of the Democratic nominee, but she's pretty clearly also willing to put Clinton on the spot.
However, Warren is also running out of time: The statute of limitations for these prosecutions is 10 years. But while Wall Street has long since recovered from the crash, the economy is still just limping into recovery eight years later. Millions of jobs, livelihoods, and families were destroyed. The Obama administration failed almost totally to help American homeowners strung up by Wall Street malfeasance, and Congress completely botched the job of making American workers whole. Meanwhile, Wall Street bigshots got to skate.
Just because some wounds are old, doesn't meant they don't hurt.