It’s a fact that seems hard to believe: after mismanagement, corruption, and incompetence in the financial industry crashed the global economy in 2008, creating the worst economic conditions since the Great Depression, no one went to jail. Taxpayers rescued Wall Street, but no one at the banks that needed the rescue ever faced criminal penalties.
At least, not yet.
The standard line from the White House, which is not without merit, says that the problem was systemic: the financial industry’s misdeeds are now obvious, but they weren’t necessarily illegal. It’s why Democrats approved Dodd-Frank reforms in 2010 — to start drawing sharper legal lines.
But Attorney General Eric Holder made clear yesterday that when it comes to financial institutions, he doesn’t believe in the notion of “too big to jail.”
In a video message posted on the Justice Department’s Web site, Holder said that “when laws indeed appear to have been broken, and the evidence supports the allegations, a company’s size will never be a shield from prosecution or penalty.”The Justice Department has been facing criticism that federal prosecutors have failed to bring criminal charges against Wall Street banks out of fear of destabilizing the financial system. The critique was fueled a year ago when Holder told lawmakers that some companies had become so large that it was difficult to prosecute them because of the potential impact on the economy.On Monday, Holder did not backtrack from those earlier comments, saying it would be “irresponsible” not to consider the fact that criminal charges could trigger the loss of a bank’s charter, effectively crippling its business. But he said the potential for such an outcome means prosecutors need to work with regulators to hold banks accountable without wrecking their entire business.
“So long as this coordination occurs, it is fully possible to criminally sanction companies that have broken the law, no matter their size,” Holder said in a video message. “This cooperation will prove key in the coming weeks and months as the Justice Department continues to pursue several important investigations.”
As Danielle Douglas’ report added, the timing of the AG’s comments were of particular interest: “A law enforcement official familiar with financial investigations at Justice but not authorized to speak publicly said prosecutors are coordinating with regulators to bring criminal charges against Swiss banking giant Credit Suisse and France’s BNP Paribas.”
It appears Holder’s remarks did not go unnoticed within the industry.
Columbia Law School Professor John Coffee … predicted Holder’s comments about criminal charges could trigger broader bank industry reaction. Referring generally to financial wrongdoing, Coffee said “maybe they’ll start saying it’s not just the cost of doing business anymore.”But Shulman Rogers attorney Jacob Frenkel warned that Holder’s comments could have “a destructive effect rather than a deterrent effect.”“I have talked to general counsels who have questioned why they want to remain a corporation domiciled in the United States in such a regulatory-unfriendly environment,” said Frenkel, a former federal prosecutor and Securities and Exchange Commission lawyer. “There are long-term ramifications to such messages.”
If the Attorney General hoped to get the financial sector’s attention, it appears he succeeded.
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Steve Benen is a producer for "The Rachel Maddow Show," the editor of MaddowBlog and an MS NOW political contributor. He's also the bestselling author of "Ministry of Truth: Democracy, Reality, and the Republicans' War on the Recent Past."